judgement:
Appeal No. 710 of 1968.
Appeal from the judgment and order dated March 1, 1967 of the Mysore High Court in Sales Tax Appeal No. 8 of 1966.
928 Somanatha Iyer, R. B. Datar and M. section Narasimhan, for the appellant.
section T. Desai, Mrs. A. K. Verma, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for the respondent.
B. Sen, Santosh Chatterjee, G. section Chatterjee and P. K. Chakravarti, for intervener No, 1. D. Goburdhun, for intervener No. 2.
The Judgment of the Court was delivered by Sikri, C.J.
In this appeal by certificate granted by the High Court of Mysore the only question involved is whether the deliveryby the respondent Hindustan Aeronautics Ltd. hereinafter referred to as the assessee to the Railway Board of railway coaches model 407, 408 and 411 is liable to sales tax under the Central Sales Tax etc.
The Commercial Tax Officer, by assessment order dated March 28, 1964, in respect of the assessment year 1958 59, included the turnover in respect of the supply of these coaches.
The Sales Tax Officer rejected the contention of the assessee that therewas no sale involved in the execution of the works contract inview of certain decisions of the High Courts; e.g., McKenzievLimited vs The State of Bombay(1) and Jiwan Singh vs State of Punjab (2).
In appeal, the Deputy Commissioner of Commercial Taxes confirmed the order.
In revision the Commissioner of Commercial Taxes also came to the same conclusion.
He observed: "The contracts specifically mentioned that the under frame shall always remain the property of the Railway Board.
On the other hand, the order placed with the assessee company here was for the 'manufacture and supply ' of railway coaches.
The payment to the assessee company is specifically referred to as 'price '.
The conditions normally included in contracts for works are absent in this order.
" He further observed : ".
I would like to reiterate here that even the actual contract is for manufacture and supply of rail coaches.
There is no mention that the rail coaches are to be constructed on the underframes of the indentor . .
If it was really a works contract the under (1) 13 S.T.C. 602.
(2) 14 S.T.C. 957.
929 frames would have been made available for construction instead of being 'supplied free of cost ' and the indentor 's lien on them would have been made clear.
The plain meaning of the contract is that the underframes were transferred to the assessee company free of cost by the Railway Board and that after construction of rail coaches on them, the rail coaches were sold to the Railway Board at the agreed price.
The agreement does not also contemplate any inspection in the course of execution as would normally be provided for in a works contract.
The only inspection is after completion and at Perembur." He thought that case of the assessee in respect of model 411 railway, coaches was Worse.
Regarding the financial arrangement between the Railway Board and the assessee, he observed "The Railway Board made only advance payments for purchase of materials and did not itself procure the material and supply them to the assessee company.
The condition that the materials become property of the Railway Board as and when purchased is only for purposes of providing adequate security for the advances.
In the circumstances, the materials can be deemed to be hypothecated to the Railway Board and the advance payments are really part payment of the final price.
The transaction relating to Rail coaches of model 411 is clearly a sale.
" He, therefore, confirmed the appellate order of the Deputy Commissioner.
The assessee then took an appeal to the High Court of Mysore under section 24(1) of the Mysore Sales Tax Act read with section 9(3) of the Central Sales tax Act.
The High Court was not satisfied with the material on record and directed that a report be sent on three points, viz : "(i) Whether and if so to what extent the assessee has drawn advance payment from the Railway Board in respect of the material utilised for completing the contracts in question; (ii) Whether any material, in respect of which no advance have been drawn, has been utilised by the assessee for completing the contracts; and (iii) Whether the assessee has used for completing the contracts any material not specifically procured for the, purposes of completing the contracts.
" 930 The Commercial Tax Officer submitted his report, and certain extracts may be reproduced below : "My findings revealed that as and when they purchased materials, they sent to the Railway Board 'an invoice ' accompanied by a list of the details regarding the materials purchased.
90 per 'cent of the value of these materials was then paid to the company after inspection of the materials by the board 's representa tive.
Invoice No. 31009 of 15 10 1956 is obtained as a sample.
This invoice shows that materials for the value of Rs. 2,60,374 12 0 were purchased by the company for 407 model coaches.
The details of the materials are given in list attached to the invoice.
The invoice and the list were sent to the board with a covering letter dated 15 10 1956 asking payment of Rs. 2,34,517 4 0 being 90 per cent of the invoice amount.
The amount of this invoice is included in the Board 's remittance note No. 1290 of 30 10 1956 and a cheque was issued to the company for the total of several such invoices.
The amount of the cheque received on 30 10 1956 was Rs. 22,90,719 0 O." He concluded : " (1) It is not possible to specify the exact amount received from the board as advance payments.
It is said that the construction was spread out more than one year and a running, account was maintained showing the debits and credits for this coaches.
(2) It is said that no materials, for which advance was not drawn, was utilised for building the coaches.
(3) It is not possible to find out whether any materials not specifically procured for the construction of coaches were used.
But it is said that there is no possibility of any other materials being used for this construction.
The constructions are said to be done at particular shed which is separately located.
No other work is undertaken in this section.
All the materials procured for constructions of coaches are said to be kept separately in this section alone.
Materials not connected with this work are not mixed up with the materials in this section.
Separate stock registers are maintained for this section.
Receipts and issues of materials for the constructions of coaches are being accounted for in this register under code numbers.
" 931 The High Court allowed the appeal and set aside the order including the turnover relating to the construction of railway coaches, models 407, 408 and 411.
Facts found by the High Court and as they appear to us are as follows On February 3, 1955, the Ministry of Railways wrote to the Hindustan Aircraft Ltd. regarding the coaching programme 1955 56.
The letter reads : "In order to book your capacity, construction of the following is planned on your works against the 1955 56 R.S.P. 1.
Third Class Coaches B.G. model 407 120 2.
Military Coaches 'M ' type model 408 60 Total :180 The intention of this intimation is to facilitate such arrangements as you may find necessary for provising for materials and for planning capacity for the question.
You should therefore treat this as a firm booking of your capacity." After discussions and settlement of terms between officers of ,the Government of India and of the assessee, the Railway Board placed orders with the assessee.
The terms agreed between the parties are found stated in a letter of the Government of India, Ministry of Railways (Railway Board) No. 57/147/RE(163) dated May 4, 1957.
This relates (to the first of the models 407.
We may extract some portions of the letter.
It is stated thus In continuation of their letter No. 56/142/ '3/Re dated 8 1 57 the Railway Board are pleased to place an order on your work for the manufacture and supply of the following coaching stock on terms and conditions stated under para 2 below : Item No. Description of stock Particular Nos.
Price per coach of Rly specification Required (without wheels Board 's and Drawing and axlesand Rolling No. under frames) Stock Programme 1957 58 384 Broad Gauge 55 B 14 180 Rs. 94,731/ Class III (Provisional) Coaches fully CSC 1119 furnished to model '407 ' 932 Following terms and conditions are relevant: (i) Price (a) The price mentioned above is for stock without wheels and axels and underframes, and is provisional.
Final price will be settled by negotiations after you have submitted your claim for the coaches ordered on you up to 1954 55 Rolling Stock Programme on the basis of the wages and material escalator approved by the Board.
(b) The final price when settled shall be subject only to the Standard Wages and material escalator clauses given below. . (c) The final payment on completion of this order shall be subject to examination and check of your books by the Chief Administrative Officer, Integral Coach Factory, Perambur, Madras.
(ii) Wheelsets and Underframes The Wheelsets and Underframes for the stock will be supplied to you free of cost f.o.r.
your work siding.
(iv) Delivery The delivery of the above stock f.o.r.
your works siding is required to commence after the completion of the stock ordered on your works against 1956 57 R.S.P. and required to be completed by January 1957, or earlier.
(v) Inspection Authority The inspection of this stock shall be carried out by a representative (C.M.E. Southern Railway) before the coaches are despatched.
(vi) Terms of payment (a) Advance 'on account ' payment to the extent of 90% of the value of the materials shall be made to you on receipt of materials and on production of a certificate from the Inspecting Authority.
(b) Payment of full contract price, less 'on account ' payment already will be made on deli very of coaches in complete condition and good working order, duly certified by the Inspecting 933 Authority on the lines of procedure laid down vide Board 's letter No. 57/142/6/M dated 4 2 1952 (Copy enclosed).
(vii) Other terms of Contract.
(i). . . (ii) If and when sales tax on this order becomes payable under law, such payments, when made, will not be on your account.
The Railway will not, however, be responsible for payment of the sales tax paid by you under misapprehension of law.
There is an indemnity bond in respect of this contract and we may set it out fully.
Standing Indemnity for advance payment against contract relating to Railway Board 's order for construction and delivery of all metal III class B.G. coaches now pending under orders Nos.
52 142/4/M dated 16th February, 1952 and 53/142/4/M dated 3rd March, 1953 and against contracts in respect of future orders that may be given by the Railway Board from time to time, by the Hindustan Aircraft Ltd., Bangalore represented by General Manager hereinafter called the Company in favour of the President of Union of India.
lie Hindustan Aircraft Ltd., hereby undertake to hold at their works at Bangalore for and on behalf of the President of the Union of India, and as his property in trust for him the Stores and articles in respect of which advances are made to them under Railway Board 's letters, No .
52,/142/4/M dated 16th February, 1952 and 53/142/4/M dated 3rd March, 1953 and hereafter to be made to the Company under future orders from the Railway Board from time to time.
The said stores and articles shall be such as are required of the purpose of the pending and future contracts and the advances made and to be made are without prejudice to the provisions of the contract as to rejection and inspection and any advance made against stores and articles rejected or found unsatisfactory on inspection shall be, refunded immediately to the President of the Union of India.
The Company shall be entirely responsible for the safe custody and protection of the said articles and stores against all risks till they are duly delivered to the 12 L736Sup CI/72 934 .lm15
President of the Union of India or as he may direct and shall indemnify the President of the Union of India against any loss, damage or deterioration whatsoever in respect of the said stores and articles while in our possession.
The said articles and material shall at all times to be open to inspection of any officer authorised by Government.
Should any loss of damage occur or a refund become due, the President of the Union of India shall be entitled to recover from the Company compensation for such loss or damage or the amount to be refunded without prejudice to any other remedies available to him by deduction from any sum due or any sum which at any time hereafter may become due to the Company under this or any other contract.
" We have set out the terms of the Indemnity Bond in great detail because the learned counsel for the appellant has strongly relied on the terms thereof.
The text of the invoice sent by the assessee for the purpose of receiving 90% advance may be seen from the covering letter dated October 15, 1956 relating to one of the invoices.
The letter reads : "On account payment of 90% on material pro cured for rail coaches 407 and 408 model VI order.
Further to our letter No. Al/Inv/1 169 dated 8 10 56 enclosing our invoice for Rs. 42,892 15 0 we enclose herewith our invoice No. 31009 dated 15 10 1956 in duplicate for Rs. 2,34,517 4 0 being 90% of materials procured in October 1956.
Kindly arrange payment of the invoice alongwith the invoice already sent.
Please instruct your resident representative to check the stock of materials as per lists attached to our invoices and send them to the Deputy Financial Adviser and Chef Accounts Officer, Integral Coach Factory, Perambur, so that he may send his represen tative to check the value of the materials.
" On these facts we have to decide whether there has been any sale of the coaches within the meaning of the Central Sales Tax Act.
We were referred to a number of cases* of this Court and the High Courts, but it seems to us that ultimately the answer must depend upon the terms of the contract.
The answer to the (1) 16S.T.C.518 McKenziesv.
State of Maharashtra.
(2) [1965] 2S.C.R.782 Patnaik & Co. vs State of Orissa.
935 question whether it is a works contract or it is a contract of sale depends upon the construction of the terms of the contract in the light of the surrounding circumstances.
In this case the salient features of the contract are as follows : (1) The Railway books capacity of the assessee for the pur pose of construction of railway coaches.
(2) Advance on account is made to the extent of 90% of the value of the material on the production of a certificate by the inspecting authority.
(3) The material used for the construction of coaches before its use is the property of the Railway.
This is quite clear from para I of the Indemnity Bond set out above.
No other meaning can be given to the words in the bond to the effect that "the Hindustan Aircraft Ltd. hereby undertake to hold at their works at Bangalore for and on behalf of the President of the Union of India and as his property in trust for him the Stores and articles in respect of which advances are made to them.
" It seems to us clear that the property in the materials which are used for the construction of the coaches becomes the property of the President before it is used.
(4) It seems that there is no possibility of any other material being used for the construction as is borne out from the report written by the Commercial Tax Officer.
(5) As far as the coaches of models 407 and 408 are concerned, the wheelsets and underframes are supplied free of cost.
(6) In the order the words used are "manufacture and supply of the following coaches." (7) The material and wage escalator and adjustments which are mentioned in the contract are neutral factors.
On these facts it seems to us that it is a pure works contract.
We are unable to agree that when all the material used in the construction of a coach belongs to the Railways there can be any sale of the coach itself.
The difference between the price of a coach and the cost of material can only be the cost of services rendered by the assessee.
If it is necessary to refer to a case which is close to the facts of this case, then this case is more in line with the decision of 936 this Court in State of Gujarat vs Kailash Engineering Co.(1) than any other case.
The only difference as far as coach model No. 41 1 is con cerned is that in that case the wheelsets and underframes are not supplied free of cost but otherwise there is no essential difference in the terms.
This does not make any difference to the result.
In the result the appeal fails and is dismissed with costs.
V.P.S. Appeal dismissed.
(1) 19 S.T.C. 13.

summary/full:
The correspondence between the Railway Board and the respondent (assessec regarding the terms and conditions for the manufacture and supply of railway coaches, and the indemnity bond in respect of the contract, disclosed that,.
(i) The Railway booked capacity of the assessee for the purpose of construction of railway coaches; (ii) an advance, on account, was made to the extent of 90% of the value of the material on the production of a certificate by the inspecting authority.
(iii) the material used for the construction of coaches before its use was the property of the railway; (iv) there was no possibility of any other material being used for the construction, and (v) the words used in the contract were, 'manufacture and supply of the following coaches. ' On the question whether there was a sale of railway coaches liable to sales tax.
or only a works contract, HELD : The answer to the question whether a contract is a works contract or a contract of sale depends upon the construction of the terms of the contract in the light of surrounding circumstances.
[935 A B] (1) In the present case.
when all the material used in the construction of a coach belonged to the Railways there cannot be any sale of the coach itself.
It was a pure works contract, the difference between the price of a coach and the cost of material being only the cost of service rendered by the assessee.
[935 G H] (2) Whether the wheels sets and under frames were supplied free of cost or not makes no essential difference, [936 A B] (3) The material and wage escalator and adjustments regarding final price mentioned in the contract are neutral factors.
[935G] State of Gujarat vs Kailash Engineering Co., 19 S.T.C. 13 (S.C.) followed.


judgement:
Appeals Nos. 1845 and 1846 of 1968.
Appeals by special leave from the judgment and order dated January 10, 1968 and October 20, 1967 of the Mysore High Court in Writ PetitiOns Nos.
1519 of 1067 and 1216 of 1965 respectively.
Jagdish Swarup, Solicitor General of India and section P. Nayar, for the appellants (in all the appeals).
section section Javali and M. Veerappa, for respondent No. 1 (in C.As.
184 1 and 1946 of 1968 ).
section L. Bhatia for respondents Nos. 1 and 2 (in C.A. No. 50 of 1969.
994 section K. Mehta, K. L. Mehta and K. R. Nagaraja, for the Intervener (in C.A. No. 1845 of 1968).
The Judgment of the Court was delivered by Khanna, J.
Whether the criterion to determine the seniority of R avi Varma and Ganapathi Kini respondents should be length of service in accordance with the Office Memorandum dated June 22, 1949 issued by the Ministry of Home Affairs, as claimed by the said respondents, or whether it should be the date of confirmation, as claimed by the appellants, is the main question which arises for decision in civil appeals Nos. 1845 and 1846 of 1968 which have been filed by the Union of India and two others by special leave against the judgment of Mysore High Court.
Similar question arises in respect of the seniority of Suresh Kumar and Tara Chand Jain, respondents in civil appeal No. 50 of 1969 which has been filed by the Union of India and two others on a ,certificate granted by the Punjab and Haryana High Court against the judgment of that Court reversing in Letters Patent appeal the ,decision of the single judge and issuing a writ in favour of those respondents.
The High Court held in all the cases that the seniority of the concerned respondents should be determined on the basis of the length of service in accordance with the above ,mentioned Office Memorandum.
Before giving the facts of the three cases, it would be pertinent to refer to two Office Memoranda issued by the Ministry of Home Affairs.
One of the memoranda is dated June 22, 1949.
It was mentioned in this memorandum that the Government of India had under consideration the question of the fixation of seniority of ;displaced government servants and temporary employees in the various grades.
Employees of the Central Government who were displaced from their offices in Pakistan, according to the memorandum, had been absorbed in offices under the control of the same administrative ministry or on nomination by the Transfer Bureau of the Ministry of Home Affairs in other offices.
All those persons had been appointed, with a few exceptions, on tem porary basis.
The Ministry of 'Home Affairs accordingly conveyed the following decision : "It has now been decided in consultation with the Federal Public Service Commission that the question of seniority in each grade should also be examined in the same context and specific rules suitable for each service prescribed in framing those instructions.
The question of seniority of Assistants in the Secretariat was recently examined very carefully in consultation with all the Ministries and Federal Public Service Commis 995 sion and the decisions reached are incorporated in para 8 of the 'Instructions for the initial constitution of the grade of Assistants ' an extract of which is attached.
It has been decided that this rule should generally be taken as the model in traming the rules of seniority for other services and in respect of persons employed in any particular grade seniority should, as a general rule, be determined on the basis of the length of service in that Grade irrespective of whether the latter was under the Central or Provincial Government of India or Pakistan.
It has been found difficult to work on the basis of 'comparable ' posts or grades and it has there fore been decided that 'Service in an equivalent Grade ', should, generally be defined as service on a rate of pay higher than the minimum of the time scale of the grade concerned.
The seniority of persons appoi nted on permanent or quasi permanent basis before the 1st January, 1944 should, however not be disturbed.
" Direction was accordingly issued by the Ministry of Home Affairs that the principles given in the Memorandum be borne in mind in determining the seniority of 'Government servants of various categories employed under the Ministry of Finance, etc. ' On December 22, 1959 another Office Memorandum was issued by the Ministry of Home Affairs on the subject of the general principles for determining seniority of various categories of persons employed in Central services.
Material part of this memorandum was as under: "The instructions contained in this Ministry 's Office Memorandum No. 30/44/48 Apptts, dated the 22nd June, 1949, were issued in order to safeguard the interests of displaced Government servants appointed to the Central Services after partition.
As it was not possible to regulate the seniority of only displaced Government servants by giving them credit for previous service, the instructions were made applicable to all categories of persons appointed to Central Services.
The principles contained in the 22nd June, 1949, orders were extended to (i) ex Government servants of Burma appointed to Central Services; and (ii) the employees of former part 'B ' States taken over to the Centre as a result of Federal Financial_ Integration.
996 The instructions contained in this Ministry 's Office Memorandum No. 32/10/49 CS dated the 31st March , 1950 and No. 32/49 CS(C), dated the 20.h September, 1952 similarly regulate the seniority of candidates with war service appointed to the Central Services.
The question has been raised whether it is necessary to continue to apply the in structions contained in the Office Memoranda cited above.
Displaced Government servants have by and large been absorbed in the various Central Services and their seniority has been fixed with reference to the previous service rend red by them.
Similarly, the seniority of ex employees of the Government of Burma and of Part 'B ' States as we I as of candidates with war service has already been determined in accordance with the instructions cited above.
As the specific objects underlying the instruction is cited above have been achieved, there is no longer any reason to apply those instructions in preference to the normal principles for determination of seniority.
It has, therefore, been decided in consultation with the Union Public Se vice Commission, that hereafter the seniority of all persons appointed to the various Central Services after the date of these instructions should be determined in accordance with the General principles annexed hereto.
The instructions contained in the various office memoranda cited in paragrah I above are hereby cancelled, except in regard to determination of seniority of persons appointed to the various Central Services prior to the date of this Office Memorandum.
The revised General principles embodied in the Annexure will not apply with retrospective effect, but will come into force with effect from the date of issue of these 'orders, unless a different date in respect of any particulate service/ grade from which these revised principles are to be adopted for purposes of determining seniority has already been or is hereafter agreed to by this Ministry. ', Relevant parts of paragraphs 2, 3 and 4 of the Annexure to this Memorandum were as under : "2 Subject to the Provision of para 3 below, persons appointed in a substantive or officiating capacity to a grade prior to the issue of these general principles shall retain the relative seniority already assigned to them or such seniority as may hereafter be assigned to them under the existing orders applicable to their cases 997 and shall en bloc be senior to all others in that grade.
Subject to the provisions of para 4 below, permanent officers of each grade shall be ranked senior to persons who are officiating in that grade.
Direct Recruits : Notwithstanding the provisions of para 3 above, the relative seniority of all direct recruits shall be determined by the order of merit in which they are selected for such appointment, on the recomendations of the U.P.S.C. or other selecting authority, persons appointed as a result of an earlier selection being senior to those appointed as a result of a subsequent selection.
Ravi Varma, respondent No. 1 in civil appeal No. 1845 of 1968.
was appointed as an Inspector in the Central Excise Collectors in Madras on 27 5 47 and was confirmed on 7 4 56.
Ganapathi Kini respondent No. 1 in civil appeal No. 1846, was appointed as an inspector in the Central Excise Collectorate in Madras on 28 5 47.
In view of the war service rendered by Ganapathi Kini, his service for purposes of seniority was computed with effect from 10 10 46 and he was confirmed on 7 4 56.
Ganapathi Kini and Ravi Varma were shown at serial Nos. 115 and 141 in accordance with the length of service in seniority list of inspectors prepared in 1959.
Subsequently on the directions of the Central Board of Revenue contained in letter dated October 19, 1962, a revised seniority list was prepared in 1963 by computing seniority from the date, of conifirmation.
In the revised list Ganapathi Kini and Ravi Varma were shown at serial, Nos. 149 and 150, junior to persons to whom they had been shown senior in the earlier seniority list.
Ganapathi Kini and Ravi Varma thereupon filed petitions under article 226 of the Constitution of India praying for quashing the revised seniority list prepared in 1963.
The main ground taken in the writ petitions was that the seniority should be determined according to length of service in terms of Office Memorandum dated June 22, 1949 of the Ministry of Home Affairs.
Impleaded in the writ petitions as respondents were the Union of India, the Central Board of Revenue and the Collector of Central Excise as also those inspectors of Central Excise who, according to the petitioners, were junior to them but who on account of being shown senior to the petitioners in the revised seniority list, had been appointed as Senior Grade Inspectors of Central Excise.
The above mentioned writ petitions were resisted by the appellants.
The learned judges of the Mysore High Court referred to the memoranda dated June 22, 1949 and December 22, 1959 L736SupCI/72 998 and held that the altered rule embodied in the Memorandum dated December 22, 1959 for the determination of seniority would be inapplicable to persons appointed before June 22, 1949 like Ganapathi Kini.
Argument was advanced on behalf of the appellants that on July 3, 1957 the Central Board of Revenue had again adopted the rule that the date of the confirmation should form the basis for determination of seniority.
This argument did not find favour with the learned judges,and it was observed "But what is however clear is that in the case of a person like the petitioner who was appointed before June 22, 1949 the rule made by the Ministry of Home Affairs on that date was what constituted the basis for the determination of seniority and not the rule which was revived by the Central Board of Revenue on July 3, 1957.
" Direction was accordingly issued that Ganapathi Kini 's seniority should be determined on on basis of the formula contained in the Office Memorandum dated June 22, 1949 and the revised seniority list be rectified accordingly.
In the petition filed Ravi Varma the High Court made a short order when, after 'referring the decision in the case of Ganapathi Kini, the learned judges granted similar relief to Ravi Varma.
Suresh Kumar, respondent No. 1 and Tara Chand Jain, res pondent No ' 2 in civil appeal No. 50 of 1969 were appointed as Lower Division Clerks in the Medical Stores Depot, Karnal under the Directorate General of High Services on October 9, 1950 and November 26 1951 respectively.
Both of them were con firmed on March 31, 1960.
In the Seniority list which was Prepared in accordance with Office Memorandum dated June 22, 1949 Suresh Kumar and Tara Chand Jain, respondents, were shown at serial Nos. 32 and 34 in accordance with their length of Service.
Subsequently Memorandum dated June 19, 1963 Was received from the Directorate General of Health Services in which there was a reference to the Ministry of Home Affairs office Memorandum date December 22, 1959.
It was stated in the Memorandum from the Directorate General of Health Services that scheduled castes ' and scheduled tribes candidates who were confirmed in reserved vacancies would rank senior to temporary, including quasi permanent persons irrespective of their position in the seniority list.
A revised seniority list was thereafter prepared and a number of scheduled castes candidates who had been recruited later but had been confirmed earlier than Suresh Kumar and Tara Chand Jain were shown senior.
Suresh Kumar and 999 Tara Chand Jain were thus shown at serial Nos. 40 and 42 in the revised seniority list Suresh Kumar and Tara Chand Jain thereafter filed petition tinder article 226 and 227 of the Constitution of India for quashing the instructions contained in the Memorandum dated June 19, 1963 issued by the Directorate General of Health Services is well its the revised seniority list and other consequential reliefs.
Impleaded is respondents in the petition were the Union or India, the Director General of Health Services, the Deputy Assistant Director General Medical Stores, as well astoother schedule castes employees of the Medical Stores Depot Karnal who had been shown senior to the petitioners in the revised seniority list.
The above petitions were resisted by the appellants and were dismissed by the learned single judge.
On Letters Patent appeal the judgment of the single judge was reversed and it was held thatSuresh Kumar and Tara Chand Jain having been appointed prior to December 22, 1959 were Governed by the rule of seniority contained in the Office Memorandum dated June 22, 1949 issued by the Ministry of Home Affairs.
This position, in the opinionof the learned judges, was not affected by the subsequent OfficeMemorandum issued by the Ministry of Home Affairs.
So far asthe Memorandum dated June 19, 1963 issued by the Directorate General of Health Services was concerned, it was found to be not in consonance with the Office Memoranda issued by the Ministry of Home Affairs on June 22, 1949 and December 22, 1959.
Assuch the Memorandum issued by the Directorate General of Health Services, according to the learned judges, could not affect the seniority of Suresh Kumar and Tara Chalid Jain.
In the result the revised seniority list was held to be invalid and theUnion of India and two other appellants were directed to prepare a revised seniority list in accordance with the original seniority of Suresh Kumar and Tara Chand Jain.
The learned Solicitor General on behalf of the appellants has at the outset referred to Memoranda dated June 22, 1949 and December 22, 1959 issued by the Ministry of Home Affairs and has argued that after the issue of the latter Memorandum the seniority of all Central Government employees should be determined by the date of their confirmation and not oil the basis of the length of service.
let this connection, we find, that the of a large number of Government employees After the partition of the country from areas now forming part of Pakisthan resulted in a situation wherein the Government had to review the Jules relating to seniority, As most of those displaced Government servants had been employed on temporary, basis and as it was felt that they should be given some weigh@age in the matter of seniority on compassionate grounds, the rule was evolved that the seniority 1000 should be determined on the basis of the length of service in equivalent grades.
The seniority of persons appointed on permanent basis or quasi permanent basis before January 1, 1944 was, however, left undisturbed.
Further, as it was not possible to regulate the seniority of only displaced Government servants by giving them credit for previous service, the instructions were made applicable to all categories of persons appointed to Central services.
Office Memorandum dated June 22, 1949 was consequently issued.
The above principles were also extended to other category of Government employees, including those with war service.
The matter was reviewed thereafter in 1959.
The Government then found that displaced Government servants had by and large been absorbed in the various Central services and their seniority had been fixed with reference to the previous service rendered by them.
Same was found to be the position of other Government servants who had been given the benefit of the principles contained in Memorandum dated June 22,.1949.
As the objects underlying the instructions of June 22, 1949 had been achieved and it was no longer considered necessary to apply those instructions in preference to the normal principle for determination of seniority, it was decided that the seniority of Central Government employees would henceforth be determined in accordance with the general principles contained in Annexure to the Office Memorandum issued by the Ministry of Home Affairs on December 22, 1959.
One ,of those principles was that permanent officiating of each grade would I ranked senior to persons who were, officiating in that grade.
The effect of that, as submitted by the learned Solicitor General, was that the seniority was to be determined by the date of confirmation and not on the basis of length of service as was the rule contained in the Office Memorandum dated June 22, 1949.
The Office Memorandum dated December 22, 1959, however, expressly made it clear that the general principles embodied in the Annexure thereto were not to have retrospective, effect.
In ,order to put the matter beyond any Pale of controversy, it was mentioned that 'hereafter the seniority of all persons appointed to the various Central Services after the date of these instructions should be determined in accor dance with the General principles annexed hereto '.
It is, therefore, manifest that except in certain cases with which we are not concerned, the Office Memorandum dated December 22, 1959 and the provisions laid down in the Annexure thereto could not apply to persons appointed to the various Central services before the date of that Memorandum.
It may also be mentioned that while dealing with the above Memorandum, this Court in the case of Mervyn Coutindo & Ors.
1001 vs Collector of Customs, Bombay & Ors.
(1) observed that these principles were not to apply retrospectively but were given effect to form the date of their issue, subject to certain reservations with which we are not concerned.
It has next been argued by the learned Solicitor General that whatever might be the positioned in respect of the employees in other Central services, so far as the clerks, supervisors and inspectors under the Central Board of Revenue were concerned, a decision was taken that for purposes of promotion, the permanent employees should have precedence before nonpermanent employees.
Our attention in this connection has been invited to letter dated March 15, 1958 sent by the Central Board of Revenue to all Collectors of Central Excise.
In this letter there was a reference to an earlier letter dated July 3, 1957 from the Board and it was mentioned that the instructions contained in the earlier letter that for purposes of promotion from ministerial grade to inspectors grade, permanent clerks would first be considered before considering persons who were non permanent, should be followed in respect of promotions to other grades also.
The Solicitor General accordingly contends that the direction contained in the Memorandum dated December 22, 1959 that it could not apply to employees appointed before that date would not hold good in the case of clerks, supervisors and inspectors functioning under the Central Board of Revenue.
It is, in our opinion, not necessary to go into this aspect of the matter because we find that the Central Board of Revenue as per letter dated August 27, 1971 addressed to all Collectors of Central Excise, gave fresh instructions regarding the principles of seniority.
In this letter there was a reference to the Office Memorandum dated December 22, 1959 issued by the Ministry of Home Affairs and it was stated : "In supersession of all previous orders on the subject, it has now been decided that in so far as the nongazetted staff in the Central Excise, Customs and Narcotics Departments and other subordinate offices are conceded, the seniority of persons appointed to various posts and services after receipt of these orders should be regulated in accordance with the Ministry of Home Affairs O.Ms.
referred to above.
" It would follow from the above that so far as the non gazetted staff 1 in the Central Excise, Customs and Narcotics Departments and other subordinate offices of the Central Board of Revenue are (1) [1966]3 S.C.R. 600.
1002 concerned, the question of seniority would have to be decided in accordance with the Office Memorandum dated 19 10 1959.
As the said Office Memorandum has, except in certain cases with which we are not concerned, applied the rule of seniority contained in the Annexure thereto only to employees appointed after the date of that Memorandum, there is no escape from the conclusion that the seniority of Ganapathi Kini and Ravi Varma, respondents, who were appointed prior to December 22, 1959, would have to be determined on the basis of their length of service in accordance with Office Memorandum dated Julie 22, 1949 and not on the basis of the date of their confirmation.
In civil appeal No. 50 of 1969 the learned Solicitor General has referred to Office Memoranda dated January 28, 1952, April 20, 1961 and March 27, 1963 issued by the Ministry of Home Affairs to show a departure from the rule of seniority for the benefit of members of scheduled castes and scheduled tribes.
Office Memorandum dated January 28, 1952 makes provision for communal representation in services for candidates to scheduled castes and scheduled tribes as also the Anglo Indian community.
The Memorandum gives a model roster which should be applied in filling the vacancies.
Perusal of the Memorandum shows that it relates only to recruitment and has nothing to do with the rule of seniority.
Office Memorandum dated April 20, 1961 deals with the ques tion of seniority of direct recruits who were confirmed in an order different from the original order of merit.
According to the Memorandum, it often happens that a scheduled caste or scheduled tribe candidate occupying a lower position in the merit list is appointed permanently to a reserved vacancy, while candidates above him in the merit list are not appointed at that time.
If such candidates are appointed in the following year, they are note entitled to a higher seniority on the ground that in the previous year they had obtained a higher position in the merit list.
It is plain that the above Office Memorandum did not deal with the question of seniority on the basis of length of service as contained in Office Memorandum dated June 22, 1949 but with the question a, to what would be the effect if a direct recruit scheduled caste or scheduled tribe candidate though occupying a lower position in the merit list, is confirmed earlier in a reserved vacancy.
We are in the present case not concerned with any merit list nor with any question of seniority based on such a list.
As such, Office Memorandum dated April 20, 1961 is also of not any material help to the appellants.
It may be stated that the counsel for the appellants in the High Court conceded that the above Memorandum had no direct relevance in the present controversy.
1003 The third Office Memorandum dated March 27, 1963 referred to by the learned solicitor General deals with the subject of maintenance of roster for giving effect to the reservations provided for scheduled castes and scheduled tribes ' in Central Government services.
This Memorandum has a bearing only on the question of recruitment and provides no guidelines for determining seniority.
We, thus, find that none of the three Office Memoranda relied upon by the Solicitor General is of any material assistance to the appellants.
We may now advert to the Memorandum dated June 19, 1963 issued by the Directorate General of Health Services.
As? mentioned earlier, it was after the receipt of this Memorandum that the seniority list of class III employees of the Government Medical Stores Depot, Karnal was revised and the seniority was determined on the basis of the date of confirmation and not on the basis of length of service.
The above Memorandum from the Directorate General of Health Services expressly refers to the Office Memorandum dated December 22, 1959 issued by the Ministry of Home Affairs and seeks implementation of that.
It is no doubt true that a direction was given in the Memorandum of the Directorate General of Health Services that scheduled caste and scheduled tribe candidates confirmed in reserved vacancies should be ranked senior to temporary, including quasi permanent persons, irrespective of their position in the seniority list, but such a direction went beyond the rule of seniority contained in the, Office Memorandum dated December 22, 1959 issued by the Ministry of Home Affairs in respect of employees appointed before that date.
As mentioned earlier Office Memorandum dated December 22, 1959 did not disturb the, seniority of Central Government employees who had been appointed prior to the date of that Memorandum, except in certain cases with which we are not concerned.
It is not disputed that according to the Government of India Allocation of Business Rules, 1961 general questions relating to recruitment, promotion and seniority in Central services like the one with Which we are concerned, have to be dealt with by the Ministry of Home Affiars.
As Suresh Kumar and Tara Chand Jain, respondents, were appointed prior to December 22, 1959 their seniority was governed by the rule of length of service as contained in Office Memorandum 1004 dated June 22, 1949 and not by the rule based upon date of confirmation as contained in the Annexure to the Memorandum dated December 22, 1959.
Reference was made by the learned Solicitor General to the case of Roshan Lal Tandon vs Union of India(1) wherein it has been laid down that the service rules may be framed and altered unilaterly by the Government.
No occasion for invoking the above dictum arises in this case because the learned counsel for the contesting respondents have not questioned the right of the Government to frame and alter unilaterly the service rules.
In the result, all the three appeals fail, and are dismissed with costs.
One hearing fee.
G.C. Appeals dismissed.

dataset_name: IN-Abs

summary/full:
In order to provide for the seniority of Central Government servants displaced from Pakistan the Home Ministry by Office Memorandum dated June 22, 1949 laid down that the seniority of all Central Government servants in the same grade shall be governed by the length of their service in that grade.
By 1959 the object underlying that memorandum had been achieved.
Accordingly by another memorandum dated December 20, 1959 the Home Ministry decided that in respect of persons appointed after that date the general rules annexed to the memorandum shall apply, one of those being that seniority shall be governed by the date of confirmation and not length of service.
In 1957 the Central Board of Revenue issued a circular whereby seniority in the offices under it was to be determined on the basis of date of confirmation.
In 1962 a revised seniority list of employees under the Central Board of Revenue was prepared on the basis of date of confirma tion.
As a result respondents G and R who were Inspectors of Central Excise lost several positions in the seniority.
These respondents had been appointed in 1947 and confirmed in 1956.
They filed writ petitions in the High Court of Mysore.
The High Court held that the memorandum of 1949 applied to their case and their senority must be decided on the basis of length of service and not the date of confirmation.
S and T were employees under the Directorate General of Health Services, Government of India.
They had joined service in 1950 and 1951 respectively.
In the seniority list, which had been prepared on the basis of length of service in accordance with the Office Memorandum ,of 1949 their positions were 32 and 34.
Subsquently Memorandum dated June 19 1963 was issued by the Directorate General of Health Services in which it was stated that Scheduled Castes and Scheduled Tribes candidates who were confirmed in reserved vacancies would rank senior to temporary, including quasi permanent persons respective of their positions in the seniority list.
As a result of the,application of this principle S and T lost seniority by several positions.
They filed writ Petitions in the High Court of Punjab and Haryana.
The Single Judge dismissed their petitions but the Division Bench allowed them on the ground that the Memorandum dated June 19, 1963 issued by the Directorate of Health Services was not in consonance with the Home Ministry 's Memoranda 1949 and 1959.
Against the judgments of the High Courts the Union of India and others appealed to this Court.
Dismissing the appeals, 993 HELD: (1) The office Memorandum dated December 22, 1959 expressly made it clear that the general principles embodied in the annexure thereto were not to have retrospective effect.
In order to put the matter beyond any pale of controversy, it was mentioned that "hereafter the seniority of all persons appointed in the various Central Services.
after the date of these instructions should be determined in accordance with the General principles annexed hereto".
It was therefore, manifest.
that except in certain cases with which the present appeals were not concerned laid down in the Annexure thereto could not apply to persons ap sions laid down in the Annexure thereto could not apply to persons appointed to the various central services before the date of that Memorandum.
[1000 6] There was thus no escape from the conclusion that the seniority of G and respondents who were appointed prior to December 22, 1959 would have to be determined on the basis of their length of service in accordance with the Office Memorandum dated June 22, 1949 and not on the.
basis of date of their confirmation.
This position was confirmed by the Central Board of Revenue in its letter dated August 27, 1971 addressed, to all Collectors of Central Excise.
[1002 D; 1001 E] Mervyn Coutindo & Ors.
vs Collector of Customs, Bombay & Ors.
; , referred to.
(ii) It was no doubt true that a direction was given in the Memoran and R respondents who were appointed prior to December 22, 1959 would and Scheduled Tribe candidates confirmed in reserved vacancies should be ranked senior to temporary, including quasi permanent persons irrespective of their position in the seniority list but such direction went beyond the rule of seniority contained in the office Memorandum dated.
December 22, 1959 issued by the Ministry of Home Affairs in respect of employees appointed before the date.
It was not disputed that according to the Government of India allocation of Business Rules, 1961 general questions relating to recruitment promotion and seniority in Central ' services had to be dealt with by the Ministry of Home Affairs.
As S and.
T respondents were appointed prior to December 22, 1959 their seniority was governed by the rule of length of service as contained in the Annexure to the Memorandum dated December 22, 1959.
[1003 E H]


judgement:
Appeal No. 1650 of 1970.
Anneal from the Judgment and order dated January 31, 1970 of the Bombay High Court in April No. 94 of 1967.
section T. Desai, P. C. Bhartari.
Ajit Mehta.
Kirit Mehta, J. B. Dadaichanji O. C. Mathur and Ravinder Narain, for the appellant.
14 L736SuPCT/72 966 B. Sen, section K. Aiyar and R. N. sachthey, for the respondents.
The Judgment of the Court was delivered by Dua, J.
The Colaba Land and Mills Co., Ltd., (in liquida tion) was ordered by the Bombay High Court on October 7, 1959 to be wound up under the provisions of the Companies Act, 1 of 1956 and the Official Liquidator was appointed its liquidator.
Earlier on May 1, 1959 the Official Liquidator had been appointed by the High Court its provisional liquidator.
On August 23, 1966 the Income tax Officer (Companies Circle) concerned issued six different notices under section 148 of the Income tax Act, 1961 proposing to reopen the assessment of the Company and to re assess it in respect of the assessment years 1950 51 to 1955 56.
On December 31, 1966, the Income tax Officer served further notices under section 142(1) of the Income tax Act upon the Official Liquidator calling upon him to produce accounts and documents speci fied at the back of the notices and to furnish any information called for by the said officer.
At the foot of the said notices it was stated that failure on the part of the Official Liquidator to comply with the terms of those notices would not only result in exparte assessment against the Company but might also entail penalty under section 271 of the Income tax AcL Certain negotiations followed between the Official Liquidator and the Inspecting Assistant Commissioner of Income tax but they were infructuous.
On an application made by the Official Liquidator in the High Court questioning the jurisdiction of the Income tax Officer to issue the said notices or to proceed with the reassessment of the Company without the leave of the High Court winding up the Company, Vimadlal J., on 28th September, 1967 held that the income tax authorities were not entitled to commence the assessment or reassessment proceedings contemplated against the Colaba Land and Mills Co., Ltd., or to continue the same without obtaining leave of the Court under section 446(1) of the (Act No. 1 of 1956) (hereinafter called the Act).
The learned Judge on this view granted an injunction restraining the Incometax Officer from assessing or re assessing the said Company for the assessment years 1950 51 to 1955 56.
On appeal by the Income tax Officer and the Union of India before the appellate bench of the High Court against the order of injunction, the Division Bench (Modi and Desai, JJ.) reversed the order of the learned single Judge and set aside the injunction issued by him.
Before the appellate bench two contentions were raised on behalf of the Income tax Officer: (1) that notices for reassessment issued under section 148 were not legal proceedings within the meaning of that phrase as used in section 446(1) of the Act, and (2) that, assuming the re assessment proceedings started under the 967 said notices to be legal proceedings, leave of the Company Court under section 446(1) of the Act was not necessary because the Incometax Officer had exclusive jurisdiction to make re assessment and to determine the tax liability.
The proceedings by way of assessment before the Income tax Officer, according to the contention were outside the pale of jurisdiction of all civil courts including the Company Court.
The appellate bench did not consider it necessary to decide the first contention because, on the authority of Damji Valji Shah vs Life Insurance Corporation of India(1), the second contention deserved to be accepted and that was considered sufficient to conclude the appeal.
The Official Liquidator, after securing a certificate of fitness from the High Court under article 133(1)(c) of the Constitution has appealed to this Court and the only question which requires consideration here is, if it is necessary for the Income tax Officer to obtain leave of the liquidation court when he wants to re assess the company for escaped income in respect of past years.
Section 446 of the Act reads : "(1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the Court and subject to such terms as the Court may impose.
(2) The Court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of (a) any suit or proceeding by or against the company; (b) any claim made by or against the company (including claims by or against any of its branches in India); (c) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company; whether such suit or proceeding has been instituted or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or (1) ; 968 after the order for the winding up of the company, or before or after the commencement of the Companies ,(Amendment) Act, 1960.
(3) Any suit or proceeding by Or against the company which is pending in any Court Other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and ,disposed of by that Court.
(4) Nothing in sub section (1) or sub section (3) shall apply to any proceeding pending in appeal before the Supreme Court or High Court." To appreciate and understand the precise scope of this section so far as it concerns us in the present controversy, we consider it pro per to turn to the scheme of the Act on this aspect.
Chapter II of Part VII of the Act beginning with section 433 deals with winding up by the Court.
Section 439 provides for applications for winding up and section 441 tells us when the winding up of a company is to be deemed to commence.
Section 442 which confers power on courts to stay or restrain proceedings against the company reads "442.
At any time after the presentation of a winding up petition and before a winding up order has been made, the company or any creditor or contributory may (a) where any suit or proceeding against the company is pending in the Supreme Court or in any High Court, apply to the Court in which the suit or proceeding is pending for a stay of proceedings therein; and (b) where any suit or proceeding is vending against the company in any other Court, apply to the Court having jurisdiction to wind up the company, to restrain further proceedings in the suit or proceeding; and the Court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit.
" Section 444 enjoins the Court making an order for the winding up of a company to cause intimation thereof to be sent forthwith to the Official Liquidator and the Registrar appointed under the .
Official Liquidators attached to the High Courts are appointed by the Central Government under section 448 and the Registrars by the Central Government under section 609 of the Act.
969 It is the duty of the petitioner in the winding up proceedings and also of the company to file under section 445 a certified copy of the order of winding up with the Registrar who has to notify in the Official Gazette that such an order has been made.
Such order is to be deemed to be a notice of discharge of the officers and employees of the company except when the business of the company is continued vide section 445 (3).
Then comes section 446, which has already been set out.
The present sub section
(2) of this section was substituted for the old one in 1960 by Act 65 of 1960 and sub & (4) was also added by that Act.
Sub section (2) is on the lines of section 7 of the Presidency Towns Insolvency Act, 1909, section 4 of the and section 45B of the Banking .
The object of this sub section appears to be to empower "the court as in exercise of insolvency jurisdiction to decide, all claims made by or against any company and other questions whatsoever so that winding up proceedings might be expedited".
Subsections (2) and (3) both seem to have been inserted to give effect to the recommendation of the Company Law Committee Report contained in para 207(c), namely, that "all suits by or against a company in winding up should, notwithstanding any provisions in any law for the time being in force, be instituted in the court in which the winding up proceedings are pending".
This was considered to be to quote the exact words "on balance an advantage to all concerned, including the parties which have a claim against the companies, to institute suits relating to its affairs in the Court where the winding up proceedings are pending".
In the Indian Companies Act, 1913, section 171 provided for preventing litigation against a company in the process of being wound up and it read as : " 171.
When a winding up order has been made or a provisional liquidator has been appointed no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the Court, and subject to such terms as the Court may impose.
" The words underlined were inserted by the Companies Amend ment Act, 1936 which followed the English Act.
It is hardly necessary to point out that company legislation in India has, ever since the first enactment of 1850 (Registration of Joint stock Companies Act, No. XLIII of 1850) broadly been following the lines of development of the company law in England.
The object of section 171 was designed to achieve was to prevent all litigation against the company in the process of being wound up except with the consent of the court.
We have reproduced this section because the decisions to which reference has been made by Shri Desai in the very beginning of his arguments relate to the cons 970 truction of this section by the Federal Court of India and by this Court.
The Federal Court in The Governor General in Council vs
Shiromani Sugar Mills Ltd.(1) while construing this section held that the words "other legal proceedings" in this section comprise any proceedings by the revenue authorities under section 46(2) of the Indian Income tax Act and accordingly, before forwarding the requisite certificate under section 46(2) to the Collector, which would put the machinery for the collection of the arrears of land revenue into motion, the Income tax Officer should have applied under section 171 of the Indian Companies Act for leave of the winding up Court.
The passage on which Shri Desai specifically relied is where, disagreeing with the observations of a Full Bench of the Lahore High Court in Shakuntla vs The People 's Bank of Northern India Ltd. (In Liquidation,)(2), Spens, C.J. observed that the expression "or other legal proceedings" in section 171 need not and, therefore, should not be confined to "original proceedings in a court of first instance analogous to a suit initiated by means of a petition similar to a plaint".
The learned Chief Justice there went on to observe : "Section 171 must, in our judgment, be construed with reference to other sections of the Act and the general scheme of administration of the assets of a company in liquidation laid down by the Act.
In particular, we would refer to section 232.
Section 232 appears to us to be supplementary to section 171 by providing that any creditor (other than Government) who goes ahead, notwithstanding a winding up order or in ignorance of it with any attachment, distress, execution or sale, without the previous leave of the Court, will find that such steps are void.
The reference to 'distress ' indicates that leave of the Court is required for more than the initiation of original proceedings in the nature of a suit in an ordinary Court of law.
Moreover, the scheme of the application of the company 's property in the pari passu satisfaction of its liabilities, envisaged in section 211 and other sections of the Act, cannot be made to work in coordination, unless all creditors (except such secured creditors as are ' outside the winding up in the sense indicated by Lord Wrenbury in his speech in Food Controller vs Cork(3) are subjected as to their actions against the property of the company to the control of the Court.
Accordingly, in our judgment, no narrow construction should be placed upon the words 'or other legal proceeding ' in section 171.
In our judgment, the words can and should be held (1) (2) Lah.
(3) 971 to cover distress and execution proceedings in the ordinary Courts.
In our view, such proceedings are other legal proceedings against the company, as contrasted with ordinary suits against the company.
" In that case a company was ordered to be wound up in April, 1942 and an order of assessment to income tax of the profits made by the company in the year ending May 31, 1940 was made in 1943 and the Income tax Officer, without obtaining leave of the winding up court, commenced proceedings for recovery of tax as If it were an arrear of land revenue.
It was on these facts that it was observed that the words "or other legal proceedings" can and should be held to cover distress and execution proceedings.
This expression was not held to cover assessment proceedings to which apparently no objection was raised by the parties though they were represented by eminent counsel.
The decision of this Court to which Shri Desai has next referred is M. K. Ranganathan vs Government of Madras(, ').
The head note which gives a clear idea of the ratio of this decision is in these words "The secured creditor is outside the winding up and can realise his security without the leave of the winding up Court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under section 171 of the Indian Companies Act to obtain the leave of the winding up Court before he can do so although such leave would almost automatically be granted.
It is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them.
It is also a well recognized rule of construction that the legislature does not intend to make a substantial alteration in the law beyond what it explicitly declares either in express words or by clear implication and that the general words of the Act are not to be so construed as to alter the previous policy of the law, unless no sense or meaning can be applied to those words consistently with the intention of preserving the existing policy untouched.
Held, therefore, that having regard to the context in which the words 'any sale held without leave of the Court of any of the properties ' added in section 232(1) by the amending Act XXII of 1936 have been used in aposition with "any attachment, distress or execution put into force without leave of the Court against the estate or effects" it would be a legitimate construction to (1) ; 972 be put upon them that they refer only to sales held through the intervention of the Court and not to sales effected by the secured creditor outside the winding up and without the intervention of the Court, and that the amendment was not intended to bring within the sweep of the general words sales effected by the secured creditor outside the winding up.
Held accordingly that in the present case the sale effected by respondent No. 2 as the receiver of the trustees of the debenture holders in July 1954 was valid and binding on all parties concerned and could not be chal lenged as it was sought to be done by the Official Receiver.
" In this case the observations already reproduced from the judgment of the Federal Court in Shakuntla 's case (supra) were approved.
It may also be pointed out that in this decision this Court observed that the winding up court assures pro rata distribution of the assets of the company in the same way in which the court under the Presidency Towns Insolvency Act or the ensures such distribution of assets.
Section 232(1) of the Act of 1913 which was held supplemental to section 171 was also stated to have reference to legal proceedings in the same way as such proceedings were envisaged by section 171.
These two decisions in our opinion do not lay down that assessment proceedings under the Income tax Act should be held to be within the contemplation of section 171 of the Indian Companies Act, 1913.
The next decision to which reference has been made by Shri Desai is Union of India vs India Fisheries (P) Ltd. (1).
In that case the respondents, Fisheries (P) Ltd., had been directed to be wound up by the winding up court and an Official Liquidator had been appointed by an order of the High Court in October, 1950.
The head note in that case gives a clear idea of the facts and the decision.
It reads : "The respondent company was directed to be wound up and an official liquidator appointed by an order of the High Court in October, 1950.
In December 1950 the respondent was assessed to tax amounting to Rs. 8737 for the year 1948 49.
A claim made for this tax on the official liquidator was adjudged and allowed as an ordinary claim and certified as such in April, 1952.
The Liquidator declared a dividend of 9 1/2 annas in the Rupee in August, 1954 and paid a sum of Rs. 5188 to the Department, leaving a balance of Rs. 3549.
(1) 973 In June, 1954, the Department made a demand from the respondent and was paid Rs. 2565 as advance tax for the year 1955 56.
On a regular assessment being made for that year, only Rs. 1126 was assessed as payable so that a sum of Rs. 1460, inclusive of interest, be came refundable to the respondent.
However, the Income Tax Officer, purporting to exercise the power available to him under section 49E of the Income Tax Act, 1922, set off this amount against the balance of Rs. 3549 due for the year 1948 49.
A revision petition filed by respondent in respect of this set off was rejected by the Commissioner of Income tax.
Thereafter, petition under article 226 filed by the respondent to set aside the orders of the Income Tax Officer and Commissioner was allowed by the High Court, on the ground that the demand for Rs. 8737 in respect of 1948 49, being adjudged and certified came to have all the incidents and character of an unsecured debt payable by the liquidator to the Department; it was therefore governed by the provisions of Company Law and no other remedy or method to obtain satisfaction of the claim was available to the creditor.
In the appeal to this Court it was contended on behalf of the appellant that section 49E gave statutory power to Income Tax Officer to set off a refundable amount against any tax remaining payable and that this power was not subject to any provision of any other law.
Held the Income Tax Officer was in error in applying section 49E and setting off the refund due to the respondent.
The effect of sections 228 and 229 of the Companies Act, 1913, is, inter alia, that an unsecured creditor must prove his debts and all unsecured debts are to be paid pari passu.
Once the claim of the Department has to be proved and is proved in liquidation proceedings, it cannot, by exercising the right under section 49E get priority over other unsecured creditors and thus defeat the very object of sections 228 and 229 of the Companies Act.
Furthermore, if there is an apparent conflict between two independent provisions of law, the special provision must prevail.
Section 49E is a general provision applicable to all assessees in all circumstances; sections 228 and 229 deal with proof of debts and their payment in liqui 97 4 dation.
Section 49E can be reconciled with sections 228 and 229 by holding that section 49E applies when insolvency rules do not apply.
" In our opinion this decision is of no greater assistance to the appellant on the narrow point which requires determination by us.
On the contrary to some extent it goes against Shri Desai because the assessment made in December, 1950, after the appointment of the Official Liquidator was assumed to be in order.
It may be recalled that in Shiromani Sugar Mills case (supra) the assessment made after the winding up order was not challenged though on the argument addressed by Shri Desai before us it could have been challenged.
The ratio decidendi or the principle accepted and applied in none of the decisions cited supports the appellant 's contention on the precise point of assessment of tax.
Shri Desai has next referred us to a more recent decision of this Court in Balwant Singh vs L. C. Bharumal, Income tax Officer, New, Delhi.(1) In this case the Income tax Officer was held to be a court for the purpose of section 195 (1) (b), Cr. P. C. though it was added that the Income tax Officer could not be treated as a re venue court and, therefore, neither section 476 nor section 479 A, Cr. P. C. would be applicable.
This decision has been cited for the purpose of contending that if the expression "other legal proceeding" in section 446 is to be construed to mean a proceeding in a court, then, the Income tax Officer must be considered to be a court when holding assessment or re assessment proceedings.
This contention may be disposed of with the observation that merely because the Income tax Officer is considered to be a court for the purpose of section 195 (1) (b), Cr. P. C. it does not necessarily follow that the said officer must be considered to be a court for the purposes of section 446 of the Act.
There is no justification for extending the scope of this decision beyond its own facts.
The decisions which apparently seem to lend more direct support to the appellants contention are Union of India vs Seth Spinning Mills Ltd., (In Liquidation) (2) and Mysore Spun Silk Mills Ltd., (In Liquidation), In re Official Liquidator vs Commissioner of Income tax, Bangalore(").
Both of them are decisions by single Judges, the former by the Punjab High Court and the latter by the Mysore High Court.
In Seth Spinning Mills case (supra) it was observed "that section 171 of the Indian Companies Act, 1913 provides that when a winding up order has been made no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court may impose.
The language of this section is wide enough to include proceedings under the Income tax Act.
(1) [1968]70 I.T.R.89(S.C.) (2) (3) 975 No leave of the court has been obtained.
In view of this the claim of the petitioner for Rs. 4,000 on account of the penalty order passed on 14th April, 1956 cannot be entertained".
in this case the Union of India through the Commissioner of Income tax had applied to the learned single Judge, who was apparently functioning as a company Judge, praying that the department 's claim amounting to Rs. 16,500 should have been admitted by the Official Liquidator and that his refusal to do so was not justified in law.
This amount, it appears, consisted of the penalty imposed by the Income tax Department.
Part of the penalty was imposed by means of an order passed prior to the company 's going into liquidation but a sum of Rs. 4,000 related to the penalty imposed after the date of winding up.
The learned single Judge while dealing with that petition observed : "Section 171 of the Indian Companies Act, 1913, provides that when a winding up order has been made no suit or other legal proceedings shall be proceeded with or commenced against the company except by leave of the court and subject to such terms as the court may impose.
The language of this section is wide enough to include proceedings under the Income tax Act.
No leave of the court has been obtained.
In view of this, the claim of the petitioner for Rs. 4,000 on account of the penalty order passed on 14th April, 1956, cannot be entertained.
" In the Mysore case it appears that in the course of winding up of the mills in liquidation large sums of money came into the hands of the liquidator which could not be immediately applied for distribution of dividends to the creditors.
Those moneys were invested pursuant to the relevant provisions of the Companies (Court) Rules.
The question arose whether in respect of the receipts of income the liquidator was liable to pay income tax on those receipts.
The learned single Judge, after discussing the scheme of the Companies Act, observed : "The liquidator is only an officer of the court.
Unlike a receiver in the case of insolvency, properties of the insolvent do not vest in him but come within the control of the court.
All his actions are subject to the control of the court for which purpose the court issues to him appropriate directions from time to time in the course of winding up.
No court or other authority (subject to the exception contained in sub section (4) of section 446 of the Companies Act) can take any proceedings or attach or otherwise reach any of the matters, the winding up court treats the liquidator as its special 97 6 officer specially charged with the duty of representing the company and protecting its interests in winding up.
In the light of the above principles, it is the duty of the court to see that all liabilities of a company are properly met in accordance with the provisions of the law and the special provisions in that behalf contained in the Companies Act.
Liability to income tax is also one of the liabilities which the court is expected to provide for in the course of winding up.
Such being the position, the question is whether, because the liquidator does not answer the description of the principal officer as defined in the Income tax Act, the liability, if any, of the company for payment of income tax itself comes to an end and therefore the winding up court may ignore that liability.
" The Court thereafter observed that the corporate existence of the company continues even after the winding up order; but after the winding up order the question of payment of income tax has to be dealt with or answered on a joint application of the terms or provisions of the Income tax Act and the Companies Act.
After so observing the court proceeded : "that even after a winding up order is passed, the company continues to be a person within the meaning of section 4 of the Income tax Act, that therefore any receipt in the course of winding up which would attract liability to income tax under appropriate provisions of the Income tax Act would be liable to income tax or for payment of tax under Income tax Act, but that before any action can be taken by the appropriate Incometax Officer under the Income tax Act for the purpose of quantification or collection of the income tax he should obtain the leave of the winding up court under section 446 of the Companies Act, and further that the collection of the tax can only be by securing the orders of the winding up court for payment of tax in the light of the appropriate provisions of the Companies Act.
" In this case so far as collection of the tax assessed is concerned there can scarcely be any difficulty in agreeing with the view taken there.
But it is only when the court said that for the purpose of quantification of the income tax also leave under section 446 of the Act ha , to be obtained that we have to consider if this view 977 is correct.
It is on this observation that Shri Desai has principally relied.
The decisions of the Federal Court and of this Court already cited by Shri Desai, it may be recalled, do not support this view.
Reference by Shri Desai has also been made to Abdul Aziz Ansari vs The State of Bombay(1) in which assessment proceedings under the Bombay Sales Tax Act, 1946 were considered to be legal proceedings for the purpose of continuance of those proceedings after repeal of the Bombay Sales Tax Act, 1946 by section 48(2) of the Bombay Sales Tax Act, 3 of 1953.
We do not think this decision is of any assistance for considering the question whether assessment or re assessment proceedings can be considered to be legal proceedings as contemplated by section 446 of the Act.
The learned counsel for the appellant has also drawn our attention to Shiromani Sugar Mills vs Governor General in Council(2) where, after referring to section 171 of the Companies Act, 1913 it was held by the Allahabad High Court, that initiation by the Income tax Officer of steps to recover the amount of assessment under section 46 of the Income tax Act of 1922 and the prosecution by the Collector of those steps amounted to "commencement" or "proceeding with" a "suit or other legal proceeding.
" Needless to point out that this is the view which the Federal Court on appeal upheld in the decision already referred to.
The further submission pressed by Shri Desai that section 446 of the Act is a special provision and section 148 of the Income tax Act a general provision of law was sought to be supported by reference to India Fisheries case(3).
It may here be pointed out that in that case it was, while dealing with section 49E of the Income tax Act, that this Court observed that the revenue could not, by exercising the right under that section get priority over other unsecured creditors, and it was in this context that it was said that there being apparent conflict between two independent provisions of law the special provision must prevail.
In order to understand and appreciate the binding force of a decision it is always necessary to see what were the facts of the case in which the decision was given and what was the point which had to be decided.
Thus considered India Fisheries case(3) lends no assistance to Shri Desai and we are unable to construe the observations in that decision to support Shri Desai 's contention that section 446 of the Act is a special provision as against section 148 of the Income tax Act under which Income tax Officers hold proceedings for assessment or re assessment of income tax and that therefore the former should prevail over the latter.
(1) A.I.R. 1958 Bom.
(2) I.L.R. 1945 Allahabad 352.
(3) 978 Turning now to the Income tax Act it is noteworthy that section 148 occurs in Chapter XIV which beginning with section 139 pres cribes the procedure for assessment and section 147 provides for assessment or re assessment of income escaping assessment.
This section empowers the Income tax Officer concerned subject to the provisions of sections 148 to 153 to assess or re assess escaped income.
While holding these assessment proceedings the Income tax Officer does not, in our view, perform the functions of a court as contemplated by section 446(2) of the Act.
Looking at the legislative history and the scheme of the Indian Companies Act, particularly the language of section 446 read as a whole, it appears to us that the expression "other legal proceeding" in sub section
(1) and the expression "legal proceeding" in sub section
(2) convey the same sense and the proceedings in both the sub sections must be such as can appropriately be dealt with by the winding up court.
The Income tax Act is, in our opinion, a complete code and it is particularly so with respect to the assessment and re assessment of income tax with which alone we are concerned in the present case.
The fact that after the amount of tax payable by an assessee has been determined or quantified its realisation from a company in liquidation is governed by the Act because the income tax payable also being a debt has to rank pari passu with other debts due from the company does not mean that the assessment proceedings for computing the amount of tax must be held to be such other legal proceedings as can only be started or continued with the leave of the liquidation court under section 446 of the Act.
The liquidation court, in our opinion, cannot perform the functions of Income tax Officers while assessing the amount of tax payable by the assessees even if the assessee be the company which is being wound up by the court.
The orders made by the Income tax Officer in the course of assessment or re assessment proceedings are subject to appeal to the higher hierarchy under the Income tax Act.
There are also provisions for reference to the High Court and for appeals from the decisions of the High Court to the Supreme Court and then there are provisions for revision by the Commissioner of Income tax.
It would lead to anomalous consequences if the winding up court were to be held empowered to transfer the assessment proceedings to itself and assess the company to income tax.
The argument on behalf of the appellant by Shri Desai is that the winding up court is empowered in its discretion to decline to transfer the assessment proceedings in a given case but the power on the plain language of section 446 of the Act must be held to vest in that court to be exercised only if considered expedient.
We are not impressed by this argument.
The language of section 446 must be so construed as to eliminate such startling consequences as investing the winding up) court with the powers of an Income tax Officer conferred on him by the Income 979 tax Act, because in our view the legislature could not have intended such a result.
The argument that the proceedings for assessment or re assessment of a company which is being wound up can only be started or continued with the leave of the liquidation court is also, on the scheme both of the Act and of the Income tax Act, unacceptable.
We have not been shown any principle on which the liquidation court should be vested with the power to stop assessment proceedings for determining the amount of tax payable by the company, which is being wound up.
The liquidation court would have full power to scrutinise the claim of the ' revenue after income tax has been determined and its payment demanded from the liquidator.
It would be open to the liquidation court then to decide how far under the law, the amount of Income tax determined by the department should be accepted as a lawful liability on the funds of the company in liquidation.
At that stage the winding up court can fully safeguard the interests of the company and its creditors under the Act.
Incidentally, it may be pointed out that at the bar no English decision was brought to our notice under which the assessment proceedings were held to be controlled by the winding up court.
On the view that we have taken, the decisions in the case of Seth Spinning Mills Ltd., (in Liquidation) (1) and the Mysore Spun Silk Mills Ltd., (In Liquidation) (2) do not seem to lay down the correct rule of law that the Income tax Officers must obtain leave of the winding up court for commencing or continuing assessment or reassessment proceedings.
For the foregoing reasons we have no hesitation in dismissing the appeal with costs.
S.C. Appeal dismissed.

summary/full:
A company (in liquidation) was ordered by the High Court to be wound up and the official liquidator was appointed its liquidator.
Thereafter the I.T.O. issued notices under section 148 of I.T. Act proposing to reopen the assessment of the Company in respect of the assessment years 1950 51 to 1955 56.
The I.T.O. further notified the official liquidator to produce accounts and documents specified at the back of the notice.
The official liquidator made an application before the High Court questioning the jurisdiction of the I.T.O. to issue the said notices without the leave of the High Court, as required under section 446(1) of the companies Act.
The learned single Judge of the High Court issued an injunction restraining the I.T.O. to reassess the said Company.
On appeal, the appellate bench of the High Court reversed the order and set aside the injunction.
On appeal to this Court only one question arose for determination as to whether it was necessary for the I.T.O. to obtain leave of the liquidation court when he wants to reassess the company for escaped income in respect of the past years.
Dismissing the appeal, HELD : The Income Tax Officer need not obtain leave of the winding up court for commencing or continuing assessment or reassessment proceedings. 'Me Income tax Act is a complete Code and section 147 empowers the Income, Tax Officer to assess or reassess escaped income.
Further while holding these assessment proceedings, the Income Tax Officer does not perform the functions of a Court as contemplated by section 446(2) of the Act.
The liquidation court cannot perform the functions of Income Tax Officers while assessing the amount of tax payable by the assessees even if the assessee be the Company which is being wound up,, by the Court.
It would lead to anomalous consequencs if the winding up Court were to be held empowered to transfer the assessment proceedings to itself and assess the Company to Income tax.
[978 B D] Grovernor General in Council vs Shiromani Sugar Mills Ltd. , Shakuntala vs The Peoples ' Bank of Northern India Ltd. (in liquidation).
Lab. 760 and M. K. Ranganathan vs State of Madras.
; , referred to and discussed.