judgement:
Appeal No. 3522(NT) of 1979.
From the Order dated 24.1.1979 of the Punjab and Haryana High Court in Income Tax Case No.50 of 1978.
WITH (C.A. NOS. 2456(NT)/78, 5987 88(NT)/90,1368(NT)/82,1549 57(NT)/93 & 1558(NT)/93.
G.Vishwanatha Iyer, C. Ramesh, T.V. Ratnam and Ayyam Perumal for P. Parmeswaran for the Appellants.
C.S. Aggarwal for B.V. Desai for the Respondents.
The Judgment of the Court was delivered by B.P. JEEVAN REDDY, J.
Civil Appeal No.2456(NT) of 1978.
This appeal is preferred against the judgment and order of the Punjab and Haryana High Court dismissing an application filed by the Revenue under Section 256(2) of the Income Tax Act.
The question which the Revenue wanted to raise reads thus: "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the receipt of Rs.1,38,577 realised @1 per bilty per customer through the bills and credited to a separate account called 'DHARMADA 'was not assessable to tax as revenue receipt?" The case of the Revenue briefly stated is to the following effect: the assessee is a private Ltd. company engaged in the business of transport.
During the accounting period ending January 31, 1970 relevant to the assessment year 1970 71, the respondent collected an amount of Rs.1,38,577 on account of DHARMADA.
The Income Tax Officer called upon the respondent assessee to explain why the said amount should not be treated as its trading receipt.
The respondent 's case was that according to the custom prevailing in the transport business, he two collected Re.1 876 per bilty for spending on charitable purposes.
He stated that out of this amount collected, a major portion was spent on charity and that the balance of Rs.8,871 was carried over in the separate account kept for DHARMADA.
His case was that this amount was never credited to his income account and it always constituted a distinct account.
This explana tion was not accepted by the Income Tax Officer who included the said amount of Rs.1,38,577 in the business income of the respondent.
On appeal, the Appellate Assistant Commissioner accepted the respondent 's contention and deleted the said addition.
The Tribunal confirmed the same.
However, says the counsel, the true state of affairs is disclosed from the assessees ' own letter extracted in the assessment order.
When called upon to explain the collection of the said amount and its purpose, the assessee submitted a reply in writing stating as under: "It is customary in the Transport business to collect/charge DHARMADA, at the rate of Re.1 per Bilty.
Not only this but also all the Transport Companies, charge/collect this customary Dharmada.
This amount is meant for distribution to the poor relatives of labourers working in the business premises and also to give at the time of marriages of girls in their families.
This is just to get full cooperation from them.
The company has nothing to do with this collection as it has to distribute the same.
" It is thus evident, says the counsel for the Revenue, that the amount though collected in the name of Dharmada was neither meant for charity nor was it ever spent on charitable purposes.
Distribution of the said money among the "poor relatives of the labourers working in the business premises (of the assessee) and also to give at the time of marriages of girls in their families" cannot be called a charitable purpose.
Indeed, according to the respondent, himself these amounts were distributed among them with a view "to get full cooperation from them.
" According to learned counsel, the assessee is really using the money collected in the name of Dharmada for his own business purposes.
In the above circumstances, say the counsel, the High Court ought to have directed the Tribunal to state the aforesaid question under Sec.256(2) of the Act, 877 So far as inclusion of amounts collected as Dharmada which are kept in a separate account and are utilised for charitable purposes is concerned, there can be no dispute that they are not liable to be included in the income of the assessee vide CL T. vs Bijli Cotton Mills (P) Ltd., but the Revenue 's case herein is that though collected in the name of Dharmada, these amounts were neither meant for any charitable purpose nor were they spent on charitable purposes.
In support of the same they rely upon the aforesaid written reply of the respondent assessee itself.
In our opinion this was a proper case where the High Court ought to have directed the Tribunal to state the said question under Section 256(2) of the Act.
We do not think it necessary to say more than this on this occasion, lest it may prejudice the case of the parties at the hearing of the reference.
The appeal is accordingly allowed, the judgment and order of the High Court is set aside and the application filed by Revenue under Section 256(2) is allowed.
The Tribunal shall state the aforesaid question for the opinion of the High Court under Section 256(2) of the Act.
No order as to costs.
CIVIL APPEAL NO.3522(NT)179, 1368(NT)182, 5987 88 (NT)190 AND S.L.P. (C) No.8353185.
These appeals and Special Leave Petition pertain to the very same assessee who is the respondent in Civil Appeal No.2456(NT) of 1978.
For the reasons given hereinabove, leave is granted in S.L.P. (C) No.8353 of 1985 and all these appeals are allowed in the same terms as the appeal No.2456(NT) of 1976.
S.L.P. (C) NOS 3257 3265 OF 1979.
The facts in these Special Leave Petitions are identical to the facts in Civil Appeal No.2456(NT) of 1978, though the assessee is different.
The assessee too is engaged in transport business.
No separate argument is addressed in these matters.
Leave granted in all these Special Leave Petitions.
For the reasons stated in the judgment in Civil Appeal No.2456(NT) of 1978, these appeals too are allowed and the Tribunal is directed to state the following question for the opinion of the High Court under Section 256(2) of the Act.
878 "Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in Law in holding the of Rs.5506, Rs.26,039, Rs33,385, Rs.49,634 and Rs.57,902 charged in `bilties ' in the assessment years 1967 68 to 1971 72 are not assessable to tax as revenue receipts.
it No costs.
G.N. Appeals allowed.

summary:
The question involved in these appeals was whether the amounts collected for spending on charity and kept in a separate account for Dharmadha could be included in the business income of the assessee.
The explanation that these amounts were distributed among the poor relatives of the labourers and to the girls in their families at the time of marriage, was not accepted by the Income tax Officer as a charity.
He added the entire dharmadha amounts to the business income of the appellant assessees.
On appeal the Appellate Assistant Commissioner deleted the said additions, and the Tribunal confirmed the deletions.
Revenue filed ap plications before the High Court for reference.
The High Court having dismissed the applications, Revenue preferred the present appeals contending that the assessees were using the amounts collected in the name of dharmadha for business purposes.
Allowing the appeals, this Court, HELD:1.
So far as the inclusion of amounts collected as Dharmada which are kept in a separate account and are utilised for charitable purposes is concerned, there can be no dispute that they are not liable to be included in the income of the assessee.
The Revenue 's case is that though collected in the name of Dharmada, these amounts were neither meant for any charitable purpose nor were they spent on charitable purposes.
In these circumstances, the High Court ought to have directed the Tribunal to state the question under Sec.256(2) of the Income tax Act, 875 1961, as to whether such amounts could be assessed to tax as revenue receipts.
The Tribunal is directed to do so.
[877 A C]


judgement:
Appeal No. 1374 of 1974 From the Judgment and Order dated 13/14 2 1974 of the Gujarat High Court in Special Civil Application No. 220 of 1970.
WITH Civil Appeal No. 1776 of 1980 From the Judgment and Order dated 21.4.1980/2.5.1980 of the Gujarat High Court in Special Civil Application No. 942 of 1976.
B.K. Mehta and H.S. Parihar for the Appellant.
807 Dave, Ms. Meenakshi Arora, Anip Sachthey for the Respondents.
The Judgment of the Court was delivered by SAWANT, J.
Civil Appeal No. 1374/1974 Some tax payers of the appellant Morvi Municipality [the 'Municipality '] had filed a writ petition in the High Court challenging the validity of the rules made by it for the levy of consolidated property tax on lands and buildings and also the assessment lists prepared and authenticated by the Municipality for the years 1967 68, 1968 69 and 1969 70.
There is no dispute that the concerned rules have been made by the Municipality under Section 271 (1) read with Section 99 (1) of the Gujarat Municipalities Act, 1963 [the 'Act '].
The relevant contentions of the writ petitioners who are the respondents before us, before the High Court were as follows 1.
Rules 2 (7), 4 and 5 of the Rules of the consolidated property tax on the lands and buildings were ultra vires Section 99 (1) (i) and proviso (e) to it read with Section 2 (1) of the Act.
The assessment lists for the years 1967 68, 1968 69 and 1969 70 were invalid since they were prepared without following the procedure laid down in Sections 105 to 112 of the Act.
The High Court upheld the validity of Rules 2 (7) and 4.
No appeal is preferred against that part of the High Court 's decision.
We are, therefore, concerned in this appeal only with the validity of Rule 5 which has been struck down by the High Court.
The High Court has also declared that the tax collected by the Municipality for the assessment years 1968 69 and 1969 70 in excess of the amounts which may be determined in accordance with the principles laid down by it in the judgment under appeal, was without the authority of law.
So far as the assessment lists for the said two years are concerned, we are concerned in this appeal only with the validity of the excess amount.
However, as far as the assessment list for the year 1967 68 is concerned, it has been struck down in its entirety by the High Court also on the ground that it was not prepared in compliance with the procedure laid down in Sections 105 to 112 of the Act.
Hence, we have to 808 consider the validity of the entire assessment for the said year.
Rules 4 and 5 have obviously been made by the Municipality to give effect to Section 99 (1) (i) which provides for imposition of taxes on buildings or lands situate within its limits.
That section reads as follows: "99.
Taxes which may be imposed.
(1) Subject to any general or special orders which the State Government may make in this behalf and to the provisions of sections 101 and 102, a municipality may impose for the purposes of this Act any of the following taxes, namely : (i) a tax on building or lands situate within the municipal borough to be based on the annual letting value or the capital value or a percentage of capital value of the buildings or lands or both;" Further, Clause (e) of the second proviso to sub section (1) of Section 99 reads as follows: "(e) the municipality in lieu of imposing separately any two or more of the taxes described in clauses (i), (vii), (ix) and (x) except a special water rate may impose a consolidated tax assessed as a tax on buildings or lands or both situated within the municipal borough.
" Since the Municipality has chosen to impose the tax on the basis of the "annual letting value" of the buildings and lands and not on the basis of the capital value or percentage of capital value, we have to ascertain in the present case the precise connotation of the expression "annual letting value".
Section 2 (1) of the Act defines the expression "annual letting value" as follows: "(1) 'annual letting value ' means the annual rent for which any building or land, exclusive of furniture of machinery contained or situate therein or thereon might reasonably be expected to let from year to year, and shall include all payments made or agreed to be made by a tenant to the owner of the building or land on account of occupation, taxes under any law for the time being in force, insurance or other charges incidental to his tenancy" 809 The crucial expressions in the above definition are "might reasonably be expected to let ' and 'all payments made or agreed to be made by a tenant to the owner on account of occupation." Shri Mehta, the learned counsel for the Municipality contended that the said expressions unmis takably indicate the actual rent received by the landlord from his tenant.
According to him, the reasonable rent means the rent which a willing tenant will pay to the willing owner and the agreement between the parties would indicate the same and no more and no less.
He further argued that the standard rent under the rent restriction legislation was only one of the factors relevant for the estimation of the reasonable expectation of the rent from the property and was not the sole basis of such rent and hence the assessment can be made on the basis of the actual rent received.
It is not necessary for us to go into a detailed discussion of the 'pros and cons of the question since the question is no longer res Integra.
The decisions of this court rendered in The Corporation of Calcutta vs Smt.
Padma Debi and others; , , Corporation of Calcutta vs Life Insurance Corporation of India; , , Guntur Municipal Council vs Guntur Town Rate Payers Association ; and Dewan Daulat Rai Kapoor and Others vs New Delhi Municipal Committee and Others, ; have consistently held that it is not the value of occupation of the property to the tenant, but the rental income from it to the owner which is to be taken into consideration while estimating the reasonable return that a landlord can expect from his property.
It has also been held there that wherever the rent is restricted on account of the operation of the rent restriction legislation, the outer limit of the reasonable rent that can be expected from the property stands defined by such restriction.
Hence, while estimating or calculating the annual rent which might reasonably be expected from such property, the provisions of such legislation have to be taken into consideration.
Different rent restriction legislations have described the maximum rent recoverable under them differently such as standard rent, fair rent etc.
Hence the annual letting value of the building or land or both to which the rent restriction legislation is applicable cannot exceed the annual standard or fair rent.
It is the annual standard/fair rent which alone, therefore, can form the basis of the assessment of the property tax by the local authority.
It is true that although a four judge Bench of this Court as early as in Padma Debi 's case [Supra], had taken this view which has been reiterated in the other decisions cited above, a three Judge Bench of this Court in a decision in Municipal 810 Corporation Indore vs Smt.
Ratnaprabha and Others, ; has held that the actual annual rent received by the owner of the property notwithstanding the application of the rent restriction legislation can provide a basis for assessment of the property tax.
However, this view taken in the above case has been explained in Dewan Daulat Rai Kapoor 's case [Supra], which is the latest decision of this Court on the point.
It has been pointed out there that the said view in the case of the Municipal Corporation, Indore [supra] turned on the presence of the non obstante clause 'notwithstanding anything contained in any other law" in the provisions of the Act levying the property tax there.
Since in the present Act, namely, the Gujarat Municipalities Act, 1963, there is no such non obstante clause, the view taken there would not apply to the present case.
Shri Mehta, learned counsel appearing for the Municipality did not press his further contentions that the presence or the absence of such non obstante clause would not make any difference to the proposition laid down there that the annual letting value should always be based upon the actual annual rent received and not on the standard or fair rent under the rent restriction legislation.
We, therefore, refrain from going into the said question in the present case and leave the point open for consideration, if necessary, in future cases.
For our purpose, it is sufficient to proceed on the footing that the annual letting value has to be determined, as held in the aforesaid three decisions of this Court, keeping in mind the outer limit down in the rent restriction legislation.
Rule 4 of the Municipality is as under: "4.
The tax on open lands and buildings shall be levied in accordance with the following rate.
The buildings which are used for residential purpose shall be levied on the annual letting value by the percentage as follows: x x x x x x 2.
The buildings which arc used for non residential purpose shall be levied on the annual letting value by the percentage as follows: x x x x x x 811 It merely prescribes that the tax that may be levied on buildings used both for residential and non residential purposes will be on the basis of the annual letting value by the percentages prescribed therein, Hence if the expression "annual letting value ' in the said rule is read as the annual letting value as determined by the out limit prescribed by the standard or fair rent under the rent restriction legislation applicable to the premises, which in the present case is the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, the validity of the said rule cannot be assailed.
The High Court has, therefore, rightly upheld it.
However, Rule 5 with the validity of which we are concerned here, reads as follows: "5 (a).
The rental actually realised in each case of the buildings, shops and lands which are let, shall be considered to be the annual letting value, but if the assessment officer has reasons to believe that the rent shown in the rent note or in account, does not represent the correct letting value, then the case of such properties he [officer] shall assess the reasonable annual letting value according to his own decision.
(b) In the case of buildings which are sublet, the rent paid by the occupier shall be taken as annual letting value.
(c) In the case of the buildings used by the owner himself, the annual letting value, shall be fixed with the rent derived from the properties [buildings] which are let nearby.
The assessment officer will not assess the annual letting value more than 6 1/4% of the capital value in the case of the properties noted in sub rule C." It will be apparent that the rule seeks to lay down the mode of working out the annual letting value of the property.
According to the rule, it is to be worked out by taking the actual rental realised as the basis.
However, where the assessment officer has reason to believe that the rent shown in the rent note or in the accounts does not represent the correct letting value, the rule permits the officer to assess the reasonable annual 812 letting value according to his own decision.
In clause (c) the rule states that so far as the buildings used by the owner himself are concerned, the annual letting value should be fixed with reference to the rent derived from the properties which are let nearby.
It is clear that to the extent the rule mandates the actual rent received to be taken into consideration for fixation of the annual letting value, even if it is in excess of the standard rent fixed under the rent restriction legislation, it is contrary to the interpretation placed by this Court on the expression "annual letting value".
It is for this reason that the High Court has struck down the whole of the said rule.
Shri Mehta does not dispute the premise that where the rent restriction legislation is applicable, Rule 5 will have to be read down to mean that the annual letting value is to be fixed only on the basis of the annual standard rent.
However, he contends that it is not necessary to strike down the said rule for there may be properties which are not governed by the rent restriction legislation and their annual letting value can be determined unrestricted by the provisions of the rent restriction legislation.
His grievance is that since the High Court has struck down the rule, instead of reading it down to bring it in conformity with the judicial decisions, the Municipality is hampered in assessing the properties to which the rent restriction legislation does not apply.
Shri Mehta may be right there, if there are such properties within the limits of the Municipality.
The correct mode of getting over the difficulty is to amend Rule 5 itself suitably to take care of such properties instead of keeping it on the rule book as it is.
There is nothing to prevent the Municipality from introducing a new rule in place of the said rule.
Even without Rule 5 and on the basis of Rule 4 as it is, the annual letting value can be calculated on the basis of the standard rent where the rent restriction legislation is applicable.
Where it is not applicable, nothing prevents the Municipality from assessing the properties on the basis of the actual rent received, under the same Rule 4 itself.
However, pending the framing of the new rule, Rule 5 as it can be interpreted as being applicable only to such properties which are not governed by the rent restriction legislation.
Hence the decision of the High Court will have to be modified to the extent the High Court has struck down the said rule instead of allowing it to remain on the rule book confining its operations only to those properties which are not governed by 813 the, Rent Control Act.
Coming now to the assessment list for 1967 68 which is struck down in its entirety by the High Court, we are afraid that the High Court has misinterpreted the provisions of Sections 105 to 112 of the Act which relate to the assessment of taxes on properties.
Section 105 provides for preparation of an assessment list containing the particulars mentioned therein such as the address and description of the property, the name(s) of the owner, the valuation based on the annual letting value, of the amount of tax assessed thereon etc.
Section 106 indicates the person(s) primarily liable for tax and the procedure to be followed when the name of such person cannot be ascertained.
Section 107 provides for the publication of notice when the assessment has been completed and the right of the owner or occupier of the property included in the list or any agent of such person, to inspect the list, and to make extracts therefrom.
Section 108 then provides for a public notice of a date before which the objections to the valuation or assessment in the assessment list, shall be made and of the hearing of objections.
Sub section (3) of Section 108 provides for the hearing of objections by the Executive Committee of the Municipality constituted under Section 53 of the Act.
Upon hearing of the objections and disposing them of, the Executive Committee is required to cause the result thereof to be noted in the book kept for the purpose.
The Executive Committee is also empowered to amend the assessment list, if necessary, in accordance with the result of the hearing.
However, before any amendment is made in the assessment list, the reasons thereof are required to be recorded in the book concerned.
This sub section also provides that the powers and duties of the Executive Committee under it, may be transferred to any other committee appointed by the Municipality or with the permission of the Development Commission to any officer or pensioner of the Government.
Sub section (4) of the said section provides that as and when in respect of any property the objections made under the section have been disposed of and the amendment required by sub section (3) have been made in the assessment list, the said list, so tar as such properties are concerned.
shall be authenticated by the signature of the Chairman and at least one other member of the Executive Committee.
If the Executive Committee 's powers and functions under sub section (3) have been transferred to any other committee or to an officer or pensioner of the Government, the authentication is to be made by the signatures of 814 not less than 2 members of such Committee or of the officer or pensioner as the case may be.
The person or the persons so authenticating the list have to certify that no valid objection has been made to the valuation and assessment of the property contained in the list except in the cases in which amendments have been made therein.
Sub section (5) of the said Section then provides that the lists so authenticated shall be deposited in the Municipal Office and shall be open for inspection to an owners and occupiers of the property entered in the list or to their agents.
Sub section (6) states that subject to such alterations made therein under the provisions of Section 109 and to the result of any appeal or revision under that Section, the entries in the assessment list so authenticated and deposited shall be accepted as conclusive evidence (i) for the purposes of the Municipal taxes and of the valuation of the annual letting value and [ii] for the purposes of the tax for which such assessment list has been prepared and the amount of the tax leviable on such properties in any official year in which the fist is in force.
Section 109 gives power to the Executive Committee to amend the assessment list if any entry in respect of any property has been either omitted from or erroneously made therein through fraud, accident or mistake.
It also gives power to the Executive Committee to amend the list if any building has been constructed, altered or reconstructed either in whole or part, after the preparation of the assessment list.
Section 110 provides that where any building or any portion of such building which is liable to payment of tax is demolished or removed otherwise than by an order of the Executive Committee, the person primarily liable for the said tax has to give notice to the Chief Officer of the Municipality.
Section 111 states that it shall not be necessary to prepare a new assessment list every year subject to the condition that the assessment list shall be completely revised every four years.
The Chief Officer is given power to adopt the valuation and assessment contained in the list for any year such alteration as may be deemed necessary for the year immediately following.
However, the provisions of Sections 107, 108 and 109 are applicable to the said list as if a new assessment list has been completed at the commencement of the official year.
The 'official year ' has been defined in Section 2 (17) of the Act to mean the year commencing on the first day of April.
815 Section 112, then gives power to the State Government to appoint a person to authenticate the assessment list in case of default by the Municipality in authenticating it.
It states that where in any year, a new assessment list is prepared or a list is revised or the valuation and assess ment contained in the list for the year immediately preceding is adopted with or without alterations, such new, revised or adopted assessment list shall be authenticated in the manner provided by Section 108 at any time not later than 31st of July of the official year to which the list relates.
If the list is not so authenticated, then the State Government shall appoint such person or persons as it thinks fit, to prepare, revise or adopt and authenticate the assessment list.
Such person or persons have to authenti cate such list at any time before the last day of the official year, i.e., 31st March of the year to which the list relates.
The section also states that Sections 105 to 108 and Section 111 shall, so far as may be necessary, apply to the preparation, revision or adoption of the list as the case may be by the person or persons appointed by the State Government.
Section 99, among others, of the Act to which we have already made a reference earlier, empowers the Municipality to impose various taxes, fees and cesses as a source of revenue for discharging its duties and functions.
The tax on buildings or lands or both, is only one of such taxes.
This tax can be recovered separately or as the consolidated tax along with general water rate and lighting tax as provided in Clause (e) of the second proviso to sub section (1) of Section 99.
The provisions contained in Sections 105 to 112 above only relate to the preparation of an assessment list of properties which are liable to such tax.
They are procedural in nature and the charging section for the tax is Section 99 of the Act.
Section 99 itself does not provide for any limitation of time on the imposition of tax.
The High Court has, however, read limitation of time in Section 112 on the authentication of the assessment list.
According to the High Court, the period of limitation for the Municipality to authenticate the list is upto 31st July of the official year to which the list relates, and in default by the Municipality.
the period of limitation for the person appointed by the State Government is upto the 31st March of the said official year.
What is further.
according to the High Court, the Municipality cannot authenticate the assessment list beyond 31st July of the official year and it is the person (s) appointed by the State Government alone who can do so and that too upto 31st March of that official year.
It is difficult to accept this reasoning.
According to us, the High Court has erred in reading in the provisions of H 816 Section 112 an intention by the legislature to lay down a period of limitation either for the Municipality or for the person or persons appointed by the State Government.
It is obvious that Section 112 in the context in which it appears is both directory and enabling in nature insofar as it requires the Municipality to authenticate the list before 31st July of the official year.
That the provisions are no more than directory is clear from the fact that they provide that if the Municipality fails to do its duty, the State Government may complete the work by appointing a person(s) to do it.
This is as it should be since the various provisions of the Act show that the revenue and the expenditure of the Municipality, among others, is controlled and regulated by the State Government.
Further the Section requires that the Municipality should complete the authentication of the assessment list before a particular date which, in the present case happens to particular date which, in the present case happens to be, 31st July of the year.
It was necessary to incorporate in the section the said provision to give enough time to the State Government to step in and authenticate the list before the end of the official year.
The official year is the same for the Municipality as well as the State Government and for the purposes of budgeting, the provision that the assessment list should be authenticated by the particular dates was necessary to be incorporated.
However, even Section 112 which is procedural in nature, does not state that the list which is authenticated by the Municipality after 31st July of the official year and by the person appointed by the Government after 31st March of the same official year would be invalid.
On the contrary, when the Municipality fails to authenticate the assessment list till 31st July of the official year, the section empowers the State Government to appoint a person or persons to authenticate the same.
It was also necessary to prescribe some time limit for the authentication by the person so appointed and hence the section provides that person(s) so appointed shall authenticate it by 31st March of the official year.
In any case, neither the Municipality is prevented from authenticating it beyond 31st July nor is the person(s) appointed by State Government prevented from doing so beyond 31st March of the official year.
In the present case, there was an additional factor which was relevant to be taken into consideration.
The Municipality had levied the property tax for the first time in the official year 1967 68 and the State Government felt that it should be given time to authenticate the same before 31st March, 1968.
That is the reason why the State Government did not appoint a person to authenticate the list after 31st July 1967, even though the Mun 817 cipality had failed to do so.
Instead, the State Government had extended the time for the Municipality to do so, till 31st March, 1968.
The step taken by the government was in conformity with the interpretation of the provisions of Section 112 which, as stated earlier, are only directory and enabling in nature.
The High Court has, therefore, erred in holding that the Municipality could not authenticate the assessment list after July, 1967 and it is only the State Government which could do it.
This the High Court did, as stated earlier, by reading 31st July, 1967 as the period of limitation for the Municipality to authenticate the list for the official year 1967 68.
There is no dispute that the Municipality authenticated the list by 28th March, 1968.
The finding of the High court that the assessment list for the year 1967 68 is void and illegal is, therefore, clearly wrong.
6.In the result, we set aside the finding of the High Court that Rule 5 is ultra vires the Act and hold that 'the same is to be read as being applicable only to the properties which are not governed by the provisions of the Rent Control Act.
As far as the properties which are amenable to the provisions of the Rent Control Act are concerned, their annual letting value will be calculated only on the basis of the standard rent determined or determinable under the said Act.
We, further, set aside the decision of the High Court striking down the assessment list for 1967 68 and hold that the said assessment list is validly authenticated and the taxes can be recovered on the basis of the same.
The appeal is allowed accordingly with no order as to costs.
CIVIL APPEAL NO.
1776/1980 7.
In the present case, Rule 5 of the rules made by the appellant Junagadh Municipality [ 'the Municipality] under Section 271 (1) and Section 99 (1) (i) of the Act has been struck down by the High Court to the extent it provides for calculating the annual letting value on the basis of actual rent, as being ultra vires Section 99 (1) (i) read with Section 2(1) of the Act.
The relevant portion of the said Rule 5 reads as follows: "In the case of buildings or lands.
which are let.
the rent which is the actual rent, or in the case where the standard rent is determined by the Civil Court, the same shall in such case be considered to be the annual letting value, unless the executive committee or the special committee on the Chief Officer or his delegate entrusted with the 818 work of valuation has reasons to believe that the rent shown in the rent note or account does not represent the correct letting value or is collusive or is not determined by the Court on merits as the case may be in which case reasons for such belief shall be stated in the decision provided that in case rent actually charged is in excess of the rent as determined by the Court at any time the rent actually charged shall be considered to be the annual letting value. ' 8.
It is not necessary to repeat what we have discussed on the subject in the accompanying appeal, viz., C.A. No. 1374 of 1974.
Suffice it to say that in the present case, the rule itself has provided that where the standard rent is determined by the Civil Court, of course under the rent restriction legislation, the annual letting value will be determined on the basis of such standard rent.
The rule, however, goes further and says that in other cases, viz., [1] where the standard rent is not determined and 121 even if it is determined, where actual rent charged is in excess of the standard rent, it is the actual rent, which will be taken as the basis for calculating the annual letting value.
The latter two situations do not make distinction between the properties to which the rent restriction legislation is applicable and the properties to which it is not applicable.
In other words, under the rule, even where the rent restriction legislation is in force, it is the actual rent which will be taken as the basis for calculating the annual letting value if the standard rent is not determined by the Court.
The High Court has, therefore, rightly struck down the rule to the extent that it applies to properties to which the rent restriction legislation is applicable.
In view of what we have stated in the accompanying appeal, we see no reason to take a different view.
However, Shri Mehta appearing for the Municipality is right in contending that it is not necessary to declare the rule ultra vires Section 99(1) read with Section 2 because it also provides for assessing the annual letting value of property on the basis of the actual rent.
That part of the rule which enables the authorities to take the actual rent as the basis for calculating the annual letting value can be read down to apply only to those properties to which the rent restriction legislation does not apply.
We agree with him there, if there are such properties within the limits of the 819 Municipality.
We, therefore, allow the appeal set aside the decision of the High Court striking down the part of the rule which enables the authorities to adopt actual rent as the basis for calculating the annual letting value of the properties.
Instead, we declare that Rule 5, to the extent it enables the authorities to take the actual rent as the basis for calculating the annual letting value, will apply only to the properties to which the rent restriction legislation which in the present case is the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, does not apply.
The appeal is allowed accordingly with no order as to costs.
V.M. Appeal allowed.

dataset_name: IN-Abs

summary:
Some tax payers of the appellant Municipality filed a writ petition in the High Court challenging the validity of the rules made by it for the levy of consolidated property tax on lands and buildings and also the assessment list prepared and authenticated by the Municipality for the year 1967 68, 1968 69 and 1969 70.
It was contented before the High Court that Rules 2(7), 4 and 5 of the Rules of the consolidated property tax on the lands and buildings were ultra vires section 99(1) (i) and the proviso (e) to it read with section 2(1) of the Act, and that the assessment lists for the years 1967 68, 1968 69 and 1969 70 were invalid since they were prepared without following the procedure laid down in Sections 105 to 112 of the Act.
The High Court upheld the validity of Rules 2(7) and 4 and struck down the validity of Rule 5.
It also declared that the tax collected by the 803 804 Municipality for the assessment years 1968 69 and 1969 70 in excess of the amounts which may be determined in accordance with the principles laid down was without the authority of law and struck down the assessment list for the year 1967 68 on the ground that it was not prepared in compliance with the procedure I aid down in Sections 105 to 112 of the Act.
Being aggrieved by the High Court 's decision the appellants preferred the present appeals.
Allowing the appeals, this Court, HELD: 1.
It is not the value of occupation of the property to the tenant, but the rental income from it to the owner which is to be taken into consideration while estimating the reasonable return that a landlord can expect from his property.
While estimating or calculating the annual rent which might reasonably be expected from such property, the provisions of such legislation have to be taken into consideration.
Different rent restriction legislations have described the maximum rent recoverable under them differently such as standard rent, fair rent etc.
Hence the annual letting value of the building or land or both to which the rent restriction legislation is applicable cannot exceed the annual standard or fair rent.
It is the annual standard/fair rent which alone, therefore, can form the basis of the assessment of the property tax by the local authority.
[809 E G] 1.2.
Since there is no non obstante clause in the Gujarat Municipalities Act, 1963, this Court refrains from going into the question of non obstante clause in the provisions of the Act levying property tax.
[810 C] 13.
If the expression 'annual letting value ' in rule 4 is read as the annual letting value as determined by the outer limit prescribed by the standard or fair rent under the rent restriction legislation applicable to the premises, which in the present cast is the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, the validity of the said rule cannot be assailed.
[811 B] 1.4.
Rule 5 mandates the actual rent received to be taken into consideration for fixation of the annual letting value, even if it is in excess of the standard rent fixed under the rent restriction legislation, which is contrary to the interpretation placed by this Court on the expression 'annual letting value".
The correct mode of getting over the difficulty is to 805 amend Rule 5 itself suitably to take care of such properties Instead of keeping it on the rule book as it is.
There is nothing to prevent the Municipality from introducing a new rule in place of the said rule.
[812B E] 1.5.
Even without Rule 5 and on the basis of Rule 4 as it is, the annual letting value can be calculated on the basis of the standard rent where the rent restriction legislation is applicable.
Where it is not applicable, nothing prevents the Municipality from assessing the properties on the basis of the actual rent received under the same Rule 4 itself.
[811 F] 1.6.
Rule 5 is to be read as being applicable only to the properties which are not governed by the provisions of the Rent Control Act.
As far as the properties which are amenable to the provisions of the Rent Control Act are concerned, their annual letting value will be calculated only on the basis of the standard rent determined or determinable under tile said Act.
Where the standard rent is determined by the Civil Court, of course under the rent restriction legislation, the annual letting value will be determined on the basis of such standard rent.
The rule, however, goes further and says that in other cases, viz., (1) where the standard rent is not determined and (2) even if it is determined, where actual rent charged is in excess of the standard rent, it is the actual rent, which will be taken as the basis for calculating the annual letting value.
The latter two situations do not make distinction between the properties to which the rent restriction legislation is applicable and the properties to which it is not applicable.
In other words, under the rule, even where the rent restriction legislation is in force, it is the actual rent which will be taken as the basis for calculating the annual letting value if the standard rent is not determined by the Court.
[817 D, 818 E F] 1.7.
Rule 5, to the extent it enables the authorities to take the actual rent as the basis for calculating the annual letting value, will apply to the properties to which the rent restriction legislation.
which in the present case is the Bombay Rent, Hotel and Lodging Housing Rates Control Act, 1947, does not apply.
[819 B] The Corporation of Calcutta vs Smt.
Padma Debi and Others, ; ; Corporation of Calcutta vs Life Insurance Corporation of India, ; , Guntur Municipal Council vs Guntur Town Rate Payers 806 Association ; and Dewan Daulat Rai Kapoor and Others vs New Delhi Municipal Committee & Others, ; , relied on.
Municipal Corporation Indore vs Smt.
Ratnaprabha and Others, ; , referred to.
[809 D] 2.
Section 112 in the context in which it appears is both directory and enabling in nature insofar as it requires the Municipality to authenticate the list before 31st July of the official year.
That the provisions are no more than directory is clear from the fact that they provide that if the Municipality fails to do its duty, the State Government way complete the work by appointing person(s) to do it.
This is as it should be since the ,various provisions of the Act show that the revenue and the expenditure of the Municipality, among others, is controlled and regulated by the State Government Further the Section requires that the Municipality should complete the authentication of the assessment list before a particular date which, in the present case happens to be, 31st July of the year.
It was necessary to incorporate in the section the said provision to give enough time to the State Government to step in and authenticate the list before the end of the official year.
The official year is the same for the Municipality as well as the State Government and for the purposes of budgeting, the provision that the assessment list should be authenticated by the particular date was necessary to be incorporated.
In any case neither the Municipality is prevented from authenticating it beyond 31st July nor is the person or persons appointed by the State Government prevented from doing so beyond 31st March of the official year.
[816 E G]


judgement:
Appeal No. 2169(NT).
of 1993.
From the Judgment and Order dated 10.12.1979 of the Madras High Court in Tax Case No. 398 of 1976.
Mrs. Janaki Ramachandran for the Appellant.
K.N. Shukla, Sudhir Walia and P. Parmeswaran for the Respondent.
The Judgment of the Court was delivered by B.P. JEEVAN REDDY, J.
Under Section 256(1) of the Income Tax Act, the Income Tax Appellate Tribunal, Madras stated the following question of law for the opinion of the Madras High Court: "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 19 being the interest received on the deposits made with the 1000 Electricity company is a business receipt and accordingly deleting the additional surcharge of Rs. 81,920 charged .for the assessment year 1963 64?" The High Court returned the reference unanswered.
It directed the Tribunal to consider the case 'on all points that require consideration of the question, whether additional surcharge was attracted '.
In short, it asked the Tribunal to examine whether the additional surcharge was attracted even if the income of Rs. 19 is chargeable under the head 'Profits and gains of business '.
The learned counsel for the assessee submits that the High Court exceeded its jurisdiction in making the above direction.
It is submitted that the matter be sent back to the High Court for answering the question of law as stated by the Tribunal.
The contention of the learned counsel is that by giving the impugned direction the High Court has sought to widen the scope of enquiry which it is not empowered to do in a reference under Section 256.
The assessee is a cooperative society engaged in the business of banking.
The previous year relevant to the assessment year 1963 64 was the year ending June 30, 1962.
Its business income was exempt under the provisions of Section 81(1) as it then stood.
During the said accounting year, the assessee received a sum of Rs. 19 being the interest on the deposit made by it with the Salem Erode Electricity Distribution Company.
This deposit was made by the assessee as required by the conditions notified by the said company for supply of energy.
The deposit carried interest and it is on account of the said interest that the sum of Rs. 19 was received by the assessee.
The Income Tax Officer treated the said amount of Rs. 19 as 'income from other sources '.
On that basis, he levied additional surcharge, in a sum of Rs. 81,920, under the provisions of the relevant Finance Act.
On appeal, the Appellate Assistant Commissioner upheld the contention of the assessee that the said sum of Rs. 19 also constituted its business income and, therefore, exempt.
Accordingly, he held, the levy of surcharge was unsustainable.
The Revenue appealed to the Appellate Tribunal.
Its case was that the said receipt cannot be treated as a business receipt and that it was rightly treated by the I.T.O. as "income from other sources '.
The Tribunal recorded in its order : "Before us it is made clear by both sides that the levy of additional surcharge and interest would depend upon the classification of the head of income for this interest income of Rs. 19 and that if it fell under income from business, the appeal has to be dismissed 1001 and that if it fell under 'income from other sources ', the appeal has to be allowed and the levy of surcharge and interest restored.
So we proceed to discuss the vital issue in this case on which hangs the result of this appeal.
" The Tribunal held it 'income from business ' and accordingly dismissed the appeal filed by the Revenue.
At the instance of the revenue, the Tribunal stated the aforesaid question.
Before the High Court it was contended by the Revenue that both the A.A.C. and the Tribunal laboured under an erroneous assumption that the said sum of Rs. 19 represented business income and the liability of surcharge was not attracted.
It was submitted that whether the said sum was a business income or income from other sources, it attracted the liability of additional surcharge.
The assessee, however, submitted that it was not open to the revenue to take the said stand, inasmuch as it agreed before the Tribunal that in case the said sum constituted business income, liability of additional surcharge was not attracted.
The assessee submitted further that the High Court should not allow the revenue to shift its stand and urge a new contention.
The High Court held, after an examination of the relevant provisions of the Finance Act and of the decisions relating to the nature of jurisdiction of the High Court in such a reference, that the assumption made by the A.A.C. and the Tribunal that the liability of surcharge is not attracted in case 'the said sum of Rs. 19 represented business income may not be warranted and that in such a situation the High Court does possess the power to correct the error so long as the point arose out of the Tribunal 's order.
The High Court held: "This Court cannot look on helplessly with reference to an error which is manifested in the contention of both sides before the Tribunal.
This court has jurisdiction to correct an error in the order of the Tribunal, so long as the point arose out of its order, whoever be the author of the mistake or error in taking up an particular contention.
Having regard to the nature of the issue that was before the Tribunal and having regard to what we have stated above, we think it proper to set aside the order of the Tribunal and direct the Tribunal to consider the case on all the points that require consideration of the question whether additional surcharge was attracted.
The reference is returned unanswered.
" 1002 We find it difficult to agree with Smt.
Janaki Ramachandran, learned counsel for the assessee that the High Court has exceeded its jurisdiction under Section 256 in making the above direction.
As rightly observed by the High Court, if the Tribunal proceeds upon an assumption which is erroneous in law and refers a question to the High Court, it cannot be said that the High Court is bound by the terms of the question referred and cannot correct the erroneous assumption of law underlying the question.
If such power is not conceded to the High Court, the result would be that the answer given by the High Court may equally be erroneous in law.
Such a situation cannot certainly be countenanced.
It would not be in the interest of law or justice.
It is not as if the High Court has asked for any fresh investigation of facts in this case not that such power does not exist in the High Court in a appropriate case.
All that the High Court has asked the Tribunal to do is to consider whether the liability of surcharge is not attracted even if the said sum of Rs. 19 is treated as income from business, The fact that the revenue was also a party to the said erroneous assumption before the Tribunal cannot stand in the way of the Revenue resiling from an erroneous assumption of law.
In C.I.T., Bombay vs Scindia Steam Navigation Ltd., ; the facts were these: a steam ship belonging to the respondent company was requisitioned by the government.
The ship was lost by enemy action on March 16, 1944.
The company received a sum of Rs. 20 lacs by way of compensation on July 17, 1944, a sum of Rs. 23 lacs on December 22.
1944 and a sum of Rs. 33,333 on August 10, 1946.
The total compensation so received exceeded the cost price of the steam ship.
The difference between the cost price and written down value was Rs. 9,26,532.
In the assessment proceeding for the A.Y. 1946 47, the revenue sought to charge the said amount under the fourth proviso to Section 10(2)(vii) of the Income Tax Act, 1922, inserted by the Income Tax (Amendment) Act, 1946, which came into force on May 4, 1946.
The assessee contended that the amount should be deemed to have been received on April 16,1944 as was done for the purposes of Excess Profits Tax Act, in which case it could not fall within the accounting period July 1, 1944 to June 30, 1945, relevant to the A.Y. 1946 47.
The Tribunal was of the opinion that the material date for the purpose of the fourth proviso to Section 10(2)(vii) was the date when the compensation was in fact received and that therefore the amount was assessable in the A.Y. 1946 47.
At the instance of the assessee, the Tribunal 1003 stated the following question of law for the opinion of the High Court "whether the sum of Rs. 9,26,532 was properly included in the assessee company 's total income computed for the A.Y. 1946 47?" Before the High Court the assessee raised a new contention for the first time that the fourth proviso to section 10(2)(vii) did not apply to the assessment as it was not in force on April 1, 1946 and the liability of the company had to be determined as on April 1, 1946, when the Finance Act, 1946 came into force.
A preliminary objection was raised by the revenue that the said aspect, or question as it may be called, did not arise out of the order of the Tribunal, that it was not raised before or dealt with by the Tribunal and that it was also not referred for the opining of the High Court.
The High Court over ruled the objection opining that the form in which the question was framed was sufficiently wide 'to take in the new contention and that the company was entitled to raise it even if that aspect of the question had not been argued before the Tribunal.
It upheld the new contention raised by the assessee and answered the question in its favour.
On appeal, this court affirmed.
It was held that the High Court had jurisdiction to entertain the new contention raised by the assessee for the first time inasmuch as it was within the scope of the question framed by the Tribunal and was implicit therein.
This court enunciated several principles relating to the nature of the jurisdiction of the High Court under Section 256, of which the following principle is relevant for our purpose: "Section 66(1) speaks of a question of law that arises out of the order of the Tribunal.
Now a question of law might be a simple one, having its impact at one point, or it may be a complex one, branching over an area with approaches leading to different points therein.
Such a question might involve more than one aspect, requiring to be tackled from different standpoints.
All that Section 66(1) requires is that the question of law which is referred to the court for decision and whic h the court is to decide must be the question which was in issue before the Tribunal.
Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal.
It will be an over refinement of the position to hold that each aspect of a question is 1004 itself a distinct question for the purpose of section 66(1) of the Act. ' This decision of the Constitution Bench, in our opinion justifies and warrants the approach adopted by the High Court in the judgment under appeal.
The question in the present case is whether additional surcharge was leviable for the A.Y. 1963 64 under the relevant Finance Act.
The assessee 's contention was that it has no income which was liable to be assessed to income tax inasmuch as its entire income was exempt under Section 81(1)(a).
In tune with this submission, the assessee submitted that the said sum of Rs. 19 was also a business income and, therefore, the liability of additional surcharge did not attach to the assessee.
The I.T.O. took the view that the said sum of Rs. 19 represented income from other sources and therefore liability of additional surcharge was attracted.
On Appeal, the AAC and the Tribunal upheld the assessee 's contention that it was business income and therefore the liability of surcharge was not attracted.
The High Court, however, thought that having regard to the language of the provisions of the relevant Finance Act, the Tribunal ought to examine whether the liability to additional surcharge is attracted even if the said sum of Rs. 19 was treated as income from business.
The High Court was of the opinion that the legal submission urged by the Revenue before the High Court, no doubt for the first time, did call for serious consideration.
This was done to arrive at a correct decision in law relating to the liability to additional surcharge.
If really, additional surcharge was chargeable according to the Finance Act even in case the said sum of Rs. 19 represented business income, the High Court cannot be called upon to act on the assumption that it is not so chargeable and answer the question stated.
Such a course would neither be in the interest of law or justice.
That the Revenue was also a party to the erroneous assumption of law makes little difference to the principle.
Counsel for the parties have cited several decisions touching upon the nature of the jurisdiction of the High Court under Section 256 viz., V.R. Y.K.N. Kallappa Chettiar vs Commissioner of Income Tax, C.I.T vs Ogale Class Works Ltd., and Keshav Mills Co. Ltd. vs Commissioner of Income Tax Bombay North, Ahmedabad, by the learned counsel for the appellant and Commissioner of 'Income Tax, Bihar and Orissa vs kirkend Coal Co., and Kusunben D. 1005 Mahadevia vs Commissioner of Income Tax, Bombay City, by the learned counsel for the Revenue.
We do not, however, think it necessary to refer to them, since the situation present herein was not present in those cases.
The principles of these decisions does not in any manner run contrary to the one affirmed by us herein, which is consistent with the one enunciated in Scindia Steam Navigation.
The appeal accordingly fails and is dismissed.
No costs.
N.V.K. Appeal dismissed.

summary:
The appellant assessee was a cooperative society engaged in the business of banking The previous year relevant to the assessment year 1963 64 was the year ending June 30, 1962.
The business income of the assessee was exempt under the provisions of Section 80(1) as it then stood.
During the aforesaid accounting yew, the assessee received a sum of Rs. 19 being the interest on the deposit made by it with an Electricity Distribution Company.
This deposit had to be made by the assessee as it was required by the conditions notified by the electricity company for supply of energy, and it carried interest.
It was on account of the said deposit that the sum of Rs. 19 was received by the assessee, by way of interest.
The Income tax Officer treated the amount of Rs. 19 as income from other sources, and on that basis, he levied additional surcharge, in a sum of Rs. 81,920.
The assessee appealed to the Appellate Assistant Commissioner who upheld the assessee 's contention that the said sum of Rs. 19 constituted its business income and, was therefore, exempt.
He held that the levy of surcharge was unsustainable.
The Revenue appealed to the Appellate Tribunal which held that it was 'income from business ', and accordingly dismissed the Revenue 's 997 998 appeal.
At the instance of the Revenue, the Tribunal referred the question to the High Court.
The High Court held, that the assumption made by the Appellate Assistant Commissioner and the Tribunal that the liability of surcharge was not attracted in case the said sum of Rs. 19 represented business income may not be warranted and that in such a situation the High Court does possess the power to correct the error so long as the point arose out of the Tribunal 's order.
It returned the reference unanswered and directed the Tribunal to consider the case on all points that require consideration of the question whether additional surcharge was attracted.
In the assessee 's appeal to this Court, it was submitted that the High Court exceeded its jurisdiction in making the aforesaid direction, that the High Court widened the scope of enquiry which it was not empowered to do in a reference under Section 256 and that the matter should be sent back to the High Court for answering the question of law as stated by the Tribunal.
Dismissing the appeal, this Court, HELD : All that the High Court has asked the Tribunal to do is to consider whether the liability of surcharge is not attracted even if the said sum of Rs. 19 is treated as income from business.
The fact that the revenue was also a party to the said erroneous assumption before the Tribunal cannot stand in the way of the Revenue resiling from an er roneous assumption of law.
[1004 D F] In the instant case, the question was whether additional surcharge was leviable for the assessment year 1963 64 under the relevant Finance Act.
The assessee 's contention was that it had no income which was liable to be assessed to income tax inasmuch as its entire income was exempt under Section 81 (1) (a), and it was submitted that the sum of Rs. 19 was also a business income and, therefore, the liability of additional surcharge did not attach to the assessee.
The I.T.O. took the view that the said sum of Rs. 19 represented income from other sources and, therefore, liability of additional surcharge was attracted.
The Appellate Assistant Commissioner upheld this contention.
The High Court, however, thought that having regard to the language of the provisions of the relevant Finance Act, the Tribunal ought to examine whether the liability to additional 999 surcharge was attracted even if the said sum of Rs. 19 was treated as income from business.
The High Court was of the opinion that this legal submission, though raised for the first time, did call for serious consideration.
This was done to arrive at a correct decision in law relating to the liability to additional surcharge.
If really, additional surcharge was chargeable according to the Finance Act even In case the said sum of Rs. 19 represented business income, the High Court cannot be called upon to act on the assumption that it is not so chargeable and answer the question stated.
Such a course would neither be in the interest of law or justice.
That the Revenue was also a party to the erroneous assumption of law makes little difference to the principle.
[1004 B F] C.I.T. Bombay vs Scindia Steam Navigation Ltd., 42 I.T.R. 589, relied on.[1004 H] V.R.Y.K.N. Kallappa Chettiar vs Commissioner of Income Tax, ; C.L T. vs Ogale Glass Works Ltd., 25 I.T.R. 529; Keshav Mills Co. Ltd. vs Commissioner of Income Tax, Bombay North, Ahmedabad, ; Commissioner of Income Tax, Bihar and Orissa vs Kirkend Coal Co., 74 I.T.R. 67 and Kusumben D. Mahadevia vs Commissioner of Income Tax, Bombay City , not applicable.
[1004 H]


judgement:
Appeal No. 1240 of 1993.
From the Judgment and Order dated 27.2.1992 of the Delhi High Court in C.W.P. No. 877 of 1991.
Arun Jaitley, Ms. Ayesha Khatri and Ms. Indu Malhotra (NP) for the Appellant.
P.P. Khurana and Arun K. Sinha for the Respondent.
The Judgment of the Court was delivered by VERMA, J.
The respondent, H.C. Khurana, was employed as Execu 1037 tive Engineer in the Delhi Development Authority (D.D.A.).
A preliminary memo was served on the respondent on 6.11.1985, alleging some irregularities by him in the construction works, and they were being investigated.
A chargesheet was framed on 11.7.1990 against the respondent on the basis of irregularities in the constructions made in a housing colony.
On 13.7.1990, the chargesheet was despatched for being served on the respondent.
However, the respondent proceeded on two months ' medical leave and, therefore, on 17.7.1990 another Executive Engineer R.K. Sood, working in the same Wing as the respondent, received it and gave the intimation that the respondent was on leave, adding that the same would be handed over to the respondent on his return from leave.
On 28.11.1990, the Departmental Promotion Committee (D.P.C.) met, and in view of the earlier decision to initiate disciplinary proceedings against the respondent, it followed the 'sealed cover procedure ' in the case of respondent.
It appears, that the effort to effect personal service of the chargesheet on the respondent on account of his non availability continued, and the same could be served personally on the respondent only on 25.1.1991.
As a result of the selection made by the D.P.C., certain persons were promoted to the post of Superintending Engineer, while the respondent 's matter was kept in obeyance to await the outcome of the disciplinary proceedings.
In these circumstances, the respondent filed Writ Petition No. 877 of 1991 in the Delhi High Court claiming a mandamus directing the D.D.A. to promote him as Superintending Engineer with effect from the date on which his juniors had been promoted to the post of Superintending Engineer, on the basis of selection made by the D.P.C.
The High Court has allowed that writ petition taking the view, that 'the framing of charge would carry with it the duty to issue and serve the same on the employee, there was no justification for the respondent to follow the sealed cover procedure in this case on 28.11.1991 when the Departmental Promotion Committee met ', since actual service of the chargesheet on the respondent was made only after the date on which the D.P.C. met.
According to the High Court, issuance of the chargesheet to the employee means its actual service on him, and this should be complete before following the sealed cover procedure.
The High Court has read Union of India and Others vs
K.V Jankiraman and Others, ; , to this effect, for taking the view, that on these facts, the disciplinary proceedings cannot be said to have been initiated prior to 29.11.1990, when the D.P.C. followed the sealed cover procedure.
Accordingly, the High Court has directed the D.D.A. to 1038 open the sealed cover; to promote the respondent as Superintending Engineer, if he has been otherwise found suitable by the D.P.C.; and, in that event, lo give him seniority with all consequential benefits from the date on which his juniors were so promoted.
The judgment of the High Court is challenged by special leave, in this appeal.
The short question for consideration, is: Whether, in the present case, the High Court has correctly applied the decision in Jankiraman? Learned counsel for the appellant contended that Jankiraman cannot be read to hold, in a case like the present, where the disciplinary proceedings had been initiated by framing the chargesheet and despatching the same, that the chargesheet had not been issued; and, therefore, the 'sealed cover procedure ' could not be followed by the D.P.C. on 28.11.1990.
On the other hand, learned counsel for the respondent strenuously urged that Jankiraman holds that without effective service of the chargesheet on the employee, the disciplinary proceedings cannot be said to have been initiated against him.
Learned counsel for the respondent referred to the Office Memorandum No. 22O `11/4/91 Estt.
(A) dated 14.9.1992 of the Department of Personnel & Training, Ministry of Personnel, Public Grievances and Pensions, Government of India, issued in supersession of the earlier.
Office Memorandum No. 220 11/2/86 Estt.
(A) dated 12.1.1988, consequent upon the judgment in Jankiraman, to support his submission that even though mere issuance or despatch of a chargesheet without the further requirement of its actual service on the employee would now be sufficient according to the O.M. dated 14.9.1992 for following the sealed cover procedure, yet the same was not sufficient earlier according to the O.M. dated 12.1.1988, which required actual service and not mere issuance of the chargesheet for initiating the disciplinary proceedings.
Admittedly, the guidelines in the O.M. dated 12.1.1988 were in force, in the present case.
The subject of the two memoranda, containing the guidelines, is the same, as under: "Promotion of Government servants against whom disciplinary/court proceedings are pending or whose Conduct is under investigation Procedure and guidelines to be followed" (emphasis supplied) 1039 Para 2 is the relevant portion in these memoranda.
In 0.M. dated 12.1.1988, para 2 is as under : "Cases of Government Servants, to whom Sealed Cover Procedure will be applicable.
2.At the time of consideration of the cases of Government servants for promotion, details of Government servants in the consideration zone for promotion falling under the following categories should be specifically brought to the notice of the Departmental Promotion Committee : (i) Government servants under suspension; (ii)Government servants in respect of whom disciplinary proceedings are pending or a decision has been taken to initiate disciplinary proceedings; (iii)Government servants in respect of whom prosecution for a criminal charge is pending or sanction for prosecution has been issued or a decision has been taken to accord sanction for prosecution.
(iv)Government servants against whom an investigation on serious allegations of corruption, bribery or similar grave misconduct is in progress either by the CBI.
or any other agency, departmental or otherwise." (emphasis supplied) The substituted clause (ii) in para 2, in O.M. dated 149.1992, is as under : "(ii) Government servants in respect of whom a Chargesheet has been issued and the disciplinary proceedings are pending; and" (emphasis supplied) It is the change made in clause (ii) of para 2 in the O.M. dated 14.9.1992, from which learned counsel for the respondent tried to find 1040 support for his submission.
Before we refer to Jankiraman, we may advert to clause (ii) of para 2 of O.M. dated 12.1.1988 which was the guideline applicable at the material time, in the present case, and is as under : "(a) Government servants in respect of whom disciplinary proceedings are pending or a decision has been taken to initiate disciplinary proceedings," (emphasis supplied) These words clearly indicate that the sealed cover procedure was applicable, in cases where the 'disciplinary proceedings are pending ' in respect of the government servant; or a decision has been taken to initiate disciplinary proceedings '.
Thus, on a decision being taken to initiate disciplinary proceedings, the guidelines attract the sealed cover procedure.
The reason is obvious.
Where a decision has been taken to initiate the disciplinary proceedings against a government servant, his promotion, even if he is found otherwise suitable, would be incongruous, because a government servant under such a cloud should not be promoted till he is cleared of the allegations against him, into which an inquiry has to be made according to the decision taken.
In such a situation, the correctness of the allegation being dependent on the final outcome of the disciplinary proceedings, it would not be fair to exclude him from consideration for promotion till conclusion of the disciplinary proceedings, even though it would be improper to promote him, if found otherwise suitable, unless exonerated.
To reconcile these conflicting interests, of the government servant and public administration, the only fair and just course is, to consider his case for promotion and to determine if he is otherwise suitable for promotion, and keep the result in abeyance in sealed cover to be implemented on conclusion of the disciplinary proceedings; and in case he is exonerated therein, to promote him with all consequential benefits, if found otherwise suitable by the Selection Committee.
On the other hand, giving him promotion after taking the decision to initiate disciplinary proceedings, would be incongruous and against public policy and principles of good administration.
This is the rationale behind the guideline to follow the sealed cover procedure in such cases, to prevent the possibility of any injustice or arbitrariness.
1041 The question now, is: What is the stage, when it can be said, that 'a decision has been taken to initiate disciplinary proceedings '? We have no doubt that the decision to initiate disciplinary proceedings cannot be subsequent to the issuance of the chargesheet, since issue of the chargesheet is a consequence of the decision to initiate disciplinary proceedings.
Framing the chargesheet, is the first step taken for holding the enquiry into the allegations, on the decision taken to initiate disciplinary proceedings.
The chargesheet is framed on the basis of the allegations made against the government servant; the chargesheet is then served on him to enable him to give his explanation; if the explanation is satisfactory, the proceedings are closed, otherwise, an enquiry is held into the charges , if the charges are not proved, the proceedings are closed and the government servant exonerated; but if the charges are proved, the penalty follows.
Thus, the service of the chargesheet on the government servant follows the decision to initiate disciplinary proceedings, and it does not precede or coincide with that decision.
The delay, if any, in service of the chargesheet to the government servant, after it has been framed and despatched, does not have the effect of delaying initiation of the disciplinary proceedings, inasmuch as information to the government servant of the charges framed against him, by service of the chargesheet, is not a part of the decision making process of the authorities for initiating the disciplinary proceedings.
This plain meaning of the expression used in clause (ii) of para 2 of O.M. dated 12.1.1988, also promotes the object of the provision.
The expression refers merely to the decision of the authority, and knowledge of the government servant, thereof, does not form a part of that decision.
The change made in clause (ii) of para 2 in O.M. dated 14.9.1992, merely clarifies this position by using the expression 'chargesheet has been issued ' to indicate that service of chargesheet is not necessary; and issue of the chargesheet by its despatch indicates beyond doubt that the decision to initiate disciplinary proceedings was taken.
In our opinion, Jankiraman takes the same view, and it is not possible to read that decision otherwise, in the manner suggested by learned counsel for the respondent.
The decision in Jankiraman is based, inter alia, on O.M. dated 12.1.1988.
The facts of the cases dealt with in the decision in Jankiraman do not indicate that the Court took the view, that even though the chargesheet against the government servant was framed and direction given to despatch the same to the government servant as a result of the decision to 1042 initiate disciplinary proceedings taken prior to the meeting of the D.P.C., that was not sufficient to attract the sealed cover procedure merely because service of the chargesheet was effected subsequent to the meeting of the D.P.C. Moreover, in Jankiraman itself, it was stated thus : "14.
To bring the record up to date, it may be pointed out that in view of the decision of this Court in Union of India vs Tejinder Singh, , decided on September 26, 1986, the Government of India in the Deptt.
of Personnel and Training issued another Office Memorandum No.22011/2/86.
(A) dated January 12, 1988 in supersession of all the earlier instructions on the subject including the Office Memorandum dated January 30,1982. .
A further guideline contained in this Memorandum is that the same sealed cover procedure is to be applied where a government servant is recommended for promotion by the DPC, but before he is actually promoted, he is either placed under suspension or disciplinary proceedings are taken against him or a decision has been taken to initiate the proceedings or criminal prosecution is launched or sanction for such prosecution has been issued or decision to accord such sanction is taken.
10.These differences in the two Memoranda have no bearing on the questions to be answered.
" (emphasis supplied) (PP.
117 118) Thereafter, in Jankiraman, the conclusions of the Full Bench of the Tribunal, under consideration, were quoted, and then while restating that the conclusions of the Tribunal could be reconciled, it was further stated, thus: '17.
There is no doubt that there is a seeming contradiction between the two conclusions.
But read harmoniously, and that is what the Full Bench has intended, the two conclusions can be reconciled with each other.
The conclusion No.1 should be read to mean that the promotion etc.
cannot be withheld merely because some disciplinary/criminal proceedings are pending against the employee.
To, deny the said benefit, they must be at the relevant time pending at the stage when charge memolcharge sheet has 1043 already been issued to the employee.
Thus read, there is no inconsistency in the two conclusions. ' (emphasis supplied) PP.
119) It will be seen that in Jankiraman also, emphasis is on the stage when a decision has been taken to initiate the disciplinary proceedings ' and it was further said that 'to deny the said benefit (of promotion), they must be at the relevant time pending at the stage when charge memo/charge sheet has already been issued to the employee '.
The word 'issued ' used in this context in Jankiraman it is urged by learned counsel for the respondent, means service on the employee.
We are unable to read Jankiraman in 'this manner.
The context in which the word 'issued ' has been used, merely means that the decision to initiate disciplinary proceedings is taken and translated into action by despatch of the chargesheet leaving no doubt that the decision had been taken.
The contrary view would defeat the object by enabling the government servant, if so inclined, to evade service and thereby frustrate the decision and get promotion in spite of that decision.
Obviously, the contrary view cannot be taken. 'Issue ' of the chargesheet in the context of a decision taken to initiate the disciplinary proceedings must mean, as it does, the framing of the chargesheet and taking of the necessary action to despatch the chargesheet to the employee to inform him of the charges framed against him requiring his explanation; and not also the further fact of service of the chargesheet on the employee.
It is so, because knowledge to the employee of the charges framed against him, on the basis of the decision taken to initiate disciplinary proceedings, does not form a part of the decision making process of the authorities to initiate the disciplinary proceedings, even if framing the charges forms a part of that process in certain situations.
The conclusions of the Tribunal quoted at the end of para 16 of the decision in Jankiraman which have been accepted thereafter in para 17 in the manner indicated above, do use the word 'served ' in conclusion No.(4), but the fact of 'issue ' of the chargesheet to the employee is emphasised in para 17 of the decision.
Conclusion No.(4) of the Tribunal has to be deemed to be accepted in Jankiraman only in this manner.
The meaning of the word 'issued ', on which considerable stress was laid by learned counsel for the respondent, has to be gathered from the 1044 context in which it is used.
Meanings of the 'word issue ' given in the Shorter Oxford English Dictionary include 'to give exit to; to send forth, or allow to pass out; to let out; . to give or send out authoritatively or officially; to send forth or deal out formally or publicly , to emit, put into circulation '.
The issue of a chargesheet, therefore, means its despatch to the government servant, and this act is complete the moment steps are taken for the purpose, by framing the chargesheet and despatching it to the government servant, the further fact of its actual service on the government servant not being a necessary part of its requirement.
This is the sense in which the word 'issue ' was used in the expression 'chargesheet has already been issued to the employee ', in para 17 of the decision in Jankiraman.
In view of the above, we are unable to accept the respondent 's contention, which found favour with the High Court, that the decision in Jankiramnan, on the facts in the present case, supports the view that the decision to initate the disciplinary proceedings had not been taken or the chargesheet had not been issued to the respondent prior to 28.11.1990, when the D.P.C. adopted the sealed cover procedure, merely because service of the chargesheet framed and issued earlier could be effected on the respondent after 28.11.1990, on account of his absence.
Consequently, the appeal is allowed and the judgment of the High Court is set aside, with the result that the writ petition of the respondent stands dismissed.
No costs.
N.V.K. Appeal allowed.

summary:
The respondent who was employed as an Executive Engineer in the DDA appellant was served on 6.11.85 a preliminary memo alleging irregularities committed by him in the construction works, and that they were being investigated.
On 11.7.90 a chargesheet was framed on the basis of these irregularities, and on 13.7.90 the chargesheet was despatched for being served on him.
The respondent, however, proceeded on two months medical leave and, therefore, on 17.7.90 another Executive Engineer workIng in the same Wing as the respondent, received It and gave intimation that the respondent was on leave and adding the same would be handed over to the respondent on his return from leave.
A Departmental Promotion Committee met on 28.11.90, and in view of the earlier decision to Initiate disciplinary proceedings against the respondent, It followed the 'sealed cover procedure ' in the case of the respondent.
Efforts to effect personal service of the chargesheet on the respondent on account of his non availability continued and the same could be served personally on him only on 25.1.91.
As a result of the selection made by the D.P.C. certain persons were promoted to the post of Superintending Engineer, while the respondent 's matter was kept In abeyance to await the result of the disciplinary proceedings.
The respondent riled a writ petition In the High Court for a writ of 1034 mandamus directing the.
DDA to promote him as Superintending Engineer with effect from the date on which his juniors had been promoted to the said post on the basis of the selection by the D.P.C.
The High Court allowed the writ petition relying on Union of India and Others vs K V. Jankiraman and Others, ; , and taking the view that the framing of charge would carry with it the duty to issue and serve the same on the employee, that there was no justification for the DDA to follow the sealed cover procedure in this case on 28.11.91 when the Departmental Promotion Committee met since actual service of the chargesheet was made only after the date on which the D.P.C. met.
Accordingly, the High Court directed the DDA to open the sealed cover, and to promote the respondent as Superintending Engineer if otherwise found suitable by the D.P.C., and to give him seniority and all consequential benefits from the date on which his juniors were so promoted.
The DDA appellant challenged the aforesaid, decision by special leave in this Court, and contended that fankiraman cannot be read to hold, in a case like the present one where the disciplinary proceedings have been initiated by framing the chargesheet and despatching the same that the chargesheet had not been issued and, therefore, the sealed cover procedure could not be followed by the D.P.C. on 28.11.90.
On behalf of the respondent official it was urged that Jankiraman holds that without effective service of the chargesheet on the employee the disciplinary proceedings cannot be said to have been initiated, and reliance was also placed on the Office Memorandum dated 12.1.88 which required actual service and not mere issuance of the chargesheet for initiating the disciplinary proceedings.
Allowing the appeal, and setting aside the judgment of the High Court, this Court, HELD : 1.
The 'sealed cover ' procedure is applicable, in cases where the 'disciplinary proceedings are pending ' in respect of the government servant; or 'a decision has been taken to initiate disciplinary proceedings '.
Thug, on a decision being taken to initiate disciplinary proceedings, the guidelines contained in OMs dated 14.9.92 and 12.1.88 attract the sealed cover procedure.
[1040 D] 2.
The decision to initiate disciplinary proceedings cannot be sub 1035 sequent to the issuance of the chargesheet, since issue of the chargesheet is a consequence of the decision to initiate disciplinary proceedings.
The service of the chargesheet on the government servant follows the decision to initiate disciplinary proceedings, and it does not precede or coincide with that decision.
The delay, if any, if service of the chargesheet to the government servant, after it has been framed and despatched, does not have the effect of delaying initiation of the disciplinary proceedings, inas much as information to the government servant of the charges framed against him, by service of the chargesheet, is not a part of the decision making process of the authorities for initiating the disciplinary proceedings.
[1041 B D] 3.The plain meaning of the expression 'a decision has been taken to initiate disciplinary proceedings ' used in clause (ii) of para 2 of O.M. dated 12.1.88, also promotes the object of the provision.
The expression refers merely to the decision of the authority, and knowledge of the government servant, thereof, does not form a part of that decision.
The change made in clause (ii) of para 2 in O.M. dated 14.9.92, merely clarifies this position by using the expression 'chargesheet has been issued ' to indicate that service of chargesheet is not necessary; and issue of the chargesheet by its despatch indicates beyond doubt that the decision to initiate disciplinary proceedings was taken.
Jankiraman takes the same view, and it is not possible to read that decision otherwise.
[1041 E F] 4.
The decision in Janiraman is based, interalia, on O.M. dated 12/1/88.
The facts of the cases dealt with in the decision in Jankiraman do not indicate that the court took the view, that even though the chargesheet against the government servant was framed and direction given to despatch the same to the government servant as a result of the decision to initiate disciplinary proceedings taken prior to the meeting of the D.P.C., that was not sufficient to attract the sealed cover procedure merely because service of the chargesheet was effected subsequent to the meeting of the D.P.C. [1041 H, 1042 A] 5. 'Issue ' of the chargesheet in the context of a decision taken to initiate the disciplinary proceedings must mean, as it does, the framing of the chargesheet and taking of the necessary action to despatch the chargesheet to the employee to inform him of the charges framed against him requiring his explanation; and not also the further fact of service of the 1036 chargesheet on the employee.
It is so, because knowledge to the employee of the charges framed against him, on the basis of the decision taken to initiate disciplinary proceedings, does not form a part of the decision making process of the authorities to initiate the disciplinary proceedings, even if framing the charges forms a part of that process in certain situations.
[1043 E F] 6.
The meaning of the word 'issued ' has to be gathered from the context in which it is used.
The issue of a chargesheet, therefore, means its despatch to the government servant, and this act is complete the moment steps are taken for the purpose, by framing the chargesheet and despatching it to the government servant, the further fact of its actual service on the government 'servant not being a necessary part of its requirement.
This is the sense in which the word 'issue ' was used in the expression 'chargesheet has already been issued to the employees ', in para 17 of the decision in Janakiraman.
[1044 B C] 7.
The decision to initiate the disciplinary proceedings against the respondent had been taken and chargesheet had also been issued to the respondent prior to 28.11.90 when the D.P.C. adopted the sealed cover procedure.
It cannot be held otherwise merely because service of the chargesheet framed and issued earlier could be effected on the respondent after 28.11.90, on account of the absence of the respondent.
[1044 D] Union of India and Others vs K.V Jankiraman and Others, ; , referred to and relied on.
[1037 G]