judgement:
Civil Appeal No. 1837 of 1974.
Appeal by Special Leave from the Judgment and Order dated 4 9 74 of the Calcutta High in Civil Rule No. 5547 (N) of 1974.
Civil Appeals Nos. 1838 1842/74 Appeals by Special Leave from the Judgments and Orders dated 18 9 74, 29 7 74, 9 8 74, of the Allahabad High Court (Lucknow Bench) in Civil Writ Nos.
4398, 400, 4397 of 1974 and C.W.A. 3344/74 and W.P. No. 947/74.
Civil Appeal No. 485/75 Appeal by Special Leave from the Judgment and Order dated 24 10 74 of the Gujarat High Court in L.P.A. No. 208/74.
Civil Appeal No. 1246/75 Appeal by Special Leave from the Judgment and Order dated 1 4 75 of the Andhra Pradesh High Court in W.A. No. 900/75.
Civil Appeal No. 2041/74 Appeal by Special Leave from the Judgment and Order dated 15 10 74 of the Gujarat High Court in L.P.A. No. 205/74.
Niren De, Attorney General for India (In all appeals) Devakinandan.
(In a11 appeals) P.P. Rao (In C. As. 1245/75 and C.A. 2041/74), R.N. Sachthey for the appellants in CAs.
1837 42 of 74, 1246/75 and 2041/74 and R. 2 in C. As.
1839, 1840/74 and RR.
1 and 2 in C.A. 485/75.
33 A.K. Sen, (In CA 1837/74), I. N. Haldar (In CA 1837/74), K.K. Singhvi (In CA 2041/74), Yogeshwar Prasad; S.K. Bagga and (Mrs.) section Bagga for RR.
1, 3, 7, 11, 12 and 14 in CA 1837/74 and R. 1 in CA Nos.
1839 1841/74 and 2041./74 and RR 2 and 3 in CA.
No. 1246/75.
Yogeshwar Prasad and (Miss) Rani Arora for R. 1 in C.A. 1838 74.
Yogeshwar Prasadand (Miss) Rani Arora for R. 1 in C.A. 1842/ 74.
Ram Panjwani, Bishamber Lal, S.K. Gupta and Dayal for Appellant in CA.
485/75 and RR 5, 6 and 7 in CA 2041/74 for the Interverners in CA 1838, 1841, 2041/74 and CA No. 1246/75.
The Judgment of the Court was delivered by Ray, C.J.
The principal question in these appeal is whether the selection list for promotion of Income Tax Officers Class Service to the post of Assistant Commission ers of Income Tax is correct or not.
The selection list was prepared by the Departmental Promotion Committee on 23, 24 and 25 July, 1974.
It may be stated here that on 16 August 1972 this Court set aside the Seniority List which had been impugned in Civil Appeal No. 2060(N) of 1971 and gave directions on which the Seniority List was to be prepared.
(See Bishan Sarup Gupta vs Union of India(1).
This selection list was prepared on the basis of the seniority list approved by this Court on 16 April, 1974 in Bishan Sarup Gupta etc.
vs Union of India & Ors. etc.
The basis of the preparation of the selection list is the field of choice.
The principles for promotion to selec tion posts are set out in a Memorandum dated 16 May 1957 issued by the Central Board of Revenue.
The principles are these: First, greater emphasis should be placed on merit as criterion for promotion.
Appointments to selection posts and selection grades should be made on the basis of merit having regard to seniority only to the extent indicat ed there Second, the Departmental Promotion Committee or other selecting authority should first decide the field of choice, namely, the number of eligible officers awaiting promotion who should be considered for inclusion in the selection list provided, however, that an officer of outstanding merit may be included in the list of eligible persons even if he is outside the normal field of choice.
Third, the field of choice wherever possible should extend to five or six times the number of vacancies expected within a year.
Fourth, from among such officers those who are considered unfit for promotion should be excluded.
The re maining officers should be classified as "outstanding", "very good" and "good" on the basis of merit as determined by their respective records of service.
The selection list should then be pre (1)[1975]Supp.
S.C.R.491 (2) ; 4 1458SCI/76 34 pared by placing the names in the order of these three categories without disturbing the seniority inter se within each category.
Fifth, promotions should strictly be made from the selection list in the order in which their names are finally arranged.
The selection list should be periodi cally reviewed.
The names of those officers who have already been promoted otherwise than on a 'local or purely temporary basis and continue to officiate should be removed from the list and the rest of the names along with others who may now be included in the field of choice should be considered for the selection list for the subsequent period.
Several persons, mainly promotees from Class II to Class I as Income Tax Officers challenged in writ petitions field before several High Courts the correctness of the field of choice so determined by the Departmental Promotion Committee hereinafter referred to as the Committee on the basis of which the said selection list was prepared.
The Gujarat and the Andhra Pradesh High Courts delivered judg ments.
The other High Courts gave interim orders staying the operation of the selection list.
There are two appeals by special leave from the judgments of the Gujarat and the Andhra Pradesh High Courts.
There are also appeals by special leave from the interim orders of the High Courts because the questions involved are the same.
There were 112 vacancies of Assistant Commissioners.
The Government of India sent 336 names in the running order of seniority for consideration of the field of choice.
Out of those 336 names the Committee took 276 names in the running order of seniority.
The principal question for consideration is whether the field of choice determined by the Committee on the basis of which the Committee prepared the selection list is correct or not.
The Gujarat High Court held that the requirement of 10 years ' experience as Income Tax Officer for promotion to the post of Assistant Commissioner as laid down in the Govern ment of India letter No. C. 33(17) Admn.
I.I./49 dated 16 January 1950 prevailed while the Committee determined the field of choice and this requirement was violated because the Committee considered persons with 8 years ' experi ence for the field of choice.
The High Court further held that even if the requirement of 10 years ' experience was not a statutory rule the requirement was to be complied with in determining the field of choice unless people with such experience were not available in the seniority list of Class I Income Tax Officers.
What the High Court said was that if such people with 10 years ' experience were available in the seniority list only such people should be considered in the field of choice ignoring those in the seniority list who are senior to such persons but have less than 10 years ' experi ence as Income Tax Officers.
The second reason given by the High Court for holding the selection list to be incorrect is that under the letter dated 16 May 1957 the field of choice should have been 5 times the number of vacancies whereas the actual field of choice contained a much lesser number.
The third ground given by the High Court for holding the selec tion list 35 to be incorrect is that in the field of choice of Com mittee did not properly evaluate the merit of persons in the field of choice.
The section of persons in the selection list was to be selection on merit only and not seniority cum merit.
The fourth reason given by the High Court is that the date for determining the eligibility of officers for promotion to the post of Assistant Commissioner of Income Tax should be decided by the Committee by bearing in mind the two dates, namely, 21 December 1972 when this Court permitted provisional promotions and 29 November 1973 when Government made the second batch of ad hoc promotions, as the two terminals.
The principal contentions on behalf of the respondents are these.
First, promotions from amongst Income Tax Offi cers Class I Service to the post of Assistant Commissioner of Income Tax have to be made solely on the basis of merit.
The respondents relied on rule 18 of Chapter II(c) section 1 Vol.
II of the Office Manual in support of their contention.
Broadly stated rule 18 is that the promotion shall be strictly on merit and further that no one should ordinarily be considered for promotion unless he has com pleted at least 10 years ' service as income Tax Officer.
The respondents amplified their contention to mean that promotion to a selection post is to be made solely on the basis of merit and not on the basis of seniority cum merit.
The second contention of the respondents is that only such of the Income Tax Officers in Class I Service who had put in at least 10 years ' service as Income Tax Officers are eligible for being considered for promotion to the post of Assistant Commissioners.
This contention.
is also based on rule 18 and according to the respondents rule 18 means that the condition precedent for eligibility to be consid ered for promotion to the post of Assistant Commissioner is that an Income Tax Officer in Class I Service must have put in at least 10 years ' service as Income Tax Officer.
The respondents further contended that rule 18 was framed on 16 January 1950 and the letter dated 21 July 1950 addressed by the Central Board of Revenue to all Commission ers of Income Tax shows that the Government of India framed the rule with the approval of the Union Public Service Commission and the Ministry of Home Affairs.
The Govern ment case is that the rule was abrogated.
The respondents ' answer to the Government contention is that the entire correspondence relied on by the Government shows that the Ministry of Finance wanted to frame new rules of seniority.
The respondents also contend that the Ministry of Home Affairs gave approval to the framing of new rules of senior ity but gave No. direction with regard to the rule relating to the recruitment except stating that the said rule might be appropriately included in the relevant recruitment rules.
Therefore the respondents contend that the recruitment rule regarding 10 years ' experience continued whereas the senior ity rule stood modified in terms of the letter of M.C. Thomas dated 4 April 1964.
The respondents also rely on the affidavit dated 8 March, 1968 flied by M.C. Thomas in the Gujarat High Court in application No. 1365 36 of 1965, an affidavit of M.C. Thomas dated 21 May 1970 filed in the Delhi High Court in writ petition No. 196 of 1970, an affidavit of the respondents dated 5 August 1974 filed in the Gujarat High Court in support of the contention that the rule relating to 10 years ' service was in force at least from 21 May, 1970.
The respondents further contend that promotions to the post of Assistant Commissioners in the year 1964 and 1970 show that all promotees except 2 had completed at least 10 years ' service before being selected for promotion.
Even with regard to those two promotees the respondents submitted that both of them joined on 24 Octo ber, 1960 but they had been selected along with others in May 1960.
Therefore, those two officers were promoted along with their batch mates of May, 1960.
The third contention of the respondents is that rule 18 has the force of law.
It is said that under section 241 of the Government of India Act 1935 the Government was empow ered to make rules.
Pursuant to that power the Government of India made the rule.
The letters dated 16 January 1950 and 21 July 1950 written by the Government to the Commissioners of Income Tax referring to rule 18 were relied on by the respondents in support of their contention.
In the alterna tive, the respondents contended that the decision of the Government contained in the letter dated 16 January, 1950 was made by the Government of India in exercise of executive powers under section 8 of the Government of India Act 1935 read with item 8 of List I of the Seventh Schedule.
This order which had the backing of law was an existing law within the meaning of clause 10 of Article 366 of the Constitution.
In the further alternative the respondents contended that the rule contained in the letter dated 16 January, 1950 was incorporated in the Office Manual issued by the Government of India in exercise Of its executive power under Article 53 of the Constitution and therefore these instructions have the force of law.
It is also said by the respondents that the rule which affects promotions of the persons constitutes the conditions of service.
The fourth contention on the part of the respondents is that the use of the word "ordinarily" in rule 18 imposes an obligation on the Union Government not to consider an Income Tax Officer Class I who has not completed at least 10 years ' service as Income Tax Officer for promotion as Assistant Commissioner unless there are extraordinary circumstances.
It is said that the word "ordinarily" does not vest in the Government unfettered condition to follow or not to follow the rule.
It is also said that the use of the word "at least 10 years ' service" shows that the word "ordinarily" has been used to enable the Government to consider such of the Income Tax Officers who have put in more than 10 years ' service.
The respondents also contend that the Government proceeded on the basis that the rule relating to 10 years ' service did not exist after April 1964; and, therefore, it cannot be said that the Government departed from rule 18 because of extraordinary circum stances.
The fifth contention is that the selection has been made in complete violation of the rule framed by the Government of India for promotion to selection post as contained in the Office Memorandum 37 of the Ministry of Home Affairs dated 16 May, 1957.
This contention is expanded by submitting that the list should have contained names of at least 5 or 6 times the number of vacancies existing within a year and in view of the fact that there were 112 existing and 10 anticipated vacancies the Government of India should have sent to the Committee names of at least 560 officers.
The Committee should then have removed such names which were unfit for promotion and thereafter have classified the rest as outstanding, very good, and good on the basis of merit.
The respondents contend that the Government sent only 336 names for con sideration when the vacancies were more than 120 and the Government also ignored the rule of 10 years ' experience.
It is also said that the Committee ignored the names of 59 officers from consideration and classified only 144 officers out of the remaining 277 and prepared the list of 122 out of 144 officers.
The respondents further contend that though respondents No. 2 and 3 in Civil Appeal No. 2041 of 1974, namely, R.K. Desai and B. Srinivasan completed 10 years ' experience they were not included within the field of choice as officers senior to them had not completed 8 years of service as Income Tax Officers.
Therefore, rule 18 was violated.
The sixth contention of the respondents is that the entire selection was arbitrary and in violation of Article 16 of the Constitution.
It is said that if the rule re quiring 10 years ' experience had been followed only such of the persons who had put in 10 years ' service would have been in the field for selection.
It is said that the Government included Income Tax Officers who were direct recruits and who had put in less than 8 years ' service in the list but excluded promotees Income Tax Officers who had put in more than 8 years ' service as Income Tax Officers.
It is further said by the respondents that out of 122 per sons selected 111 are direct recruits and only 11 are promo tees.
Reference was made to the junior most person in the selection list Madan Mohan Joshi.
It is said that Madan Mohan Joshi was appointed as Income Tax Officer Class I on 5 July, 1965, and, therefore, he completed 9 years ' service at the time of selection.
The last person considered by the Committee is a direct recruit Rajeswar Rao Gnutam who was appointed on 8 July, 1966.
Again, it is said that from amongst the promotees Raghubir Singh the promotee who joined Class I Service on 1 May 1964 and had more than 10 years ' service was not placed in the field of choice.
The respondents, therefore, contend that promotee Officers who had put in more than 8 years ' service as Income Tax Officers were not included in the field of choice whereas direct recruits who had not completed 8 years ' service were in cluded in the field of choice.
The seventh contention of the respondents is that the eligibility of Income Tax Officers for the purpose of promo tion to the post of Assistant Commissioner should be consid ered either as on 21 October, 1972 or 21 March 1973 or 29 November 1973.
In support of that contention it is said that when the Government of India made an application for filling up certain posts this Court by order dated 21 Decem ber 1972 permitted the Government to fill in the posts on ad 38 hoc basis from amongst the eligible officers on the basis of continuous, length of service in Class I. Accordingly, by orders dated 21 March 1973, and 29 November, 1973, 59 and 48 officers respectively were promoted on ad hoc basis.
These officers were to, be replaced by regular selection.
The seniority list was confirmed by this Court by judgment dated 16 April 1974.
The respondents, therefore, contend that the Committee had to regularise aforesaid 107 promo tions, and the regularisation had necessarily to be done from the dates of original promotions on ad hoc basis.
It is said in this context that the eligibility of officers for the purpose of promotion must be considered either on 21 December 1972 or on 21 March 1973 or on 29 November, 1973.
The respondents also submit that the eligibility has refer ence to the date of vacancy and therefore only such of the persons who had the qualified service on the date of vacancy ought to be considered by the Committee.
Reliance was placed on the observations of this Court in Bishan Sarup Gupta 's case(1) that after the finalisation of the seniority list the department should consider the cases of all eligi ble officers for promotion on the basis of their records as on the date when they ought to have been considered by selection but who were not so considered.
The first question for consideration is whether the rule of 10 years ' experience was modified to 8 years ' expe rience.
The correspondence between the Central Government and the Union Public Service Commission between 30 January 1963 and 26 June 1969 shows that the principle for promotion as Assistant Commissioner is that no Income Tax Officer should ordinarily be considered unless he has completed 8 years ' service as Income Tax Officer.
The proposal for this change from 10 years to 8 years emanated from the Finance Ministry.
The Home Ministry stated that the rule does not strictly relate to the seniority rules in respect of As sistant Commissioners of Income Tax and should thus be included in the relevant Recruitment Rules, that is, Rules for selection for the post of Assistant Commissioner of Income Tax.
The Union Public Service Commission as will appear from the letter dated 31 May, 1963 agreed subject to proposed modification regarding the seniority of Assistant Commissioners of Income Tax.
It thus appears that the Finance Ministry, the Home Ministry and the Union Public Commission concurred with the change from the requirement of experience for 10 years to that of 8 years.
The requirement of 10 years ' experience as laid down in the letter dated 16 January, 1950 and the Office Manual published ' in 1955 thus came to be modified.
The only thing which is to be noticed is that no Rules under Article 309 were made.
The change from 10 years to 8 years ' experience was recorded by means of correspondence as an administrative instruction.
It is explicable that the letter dated 16 January, 1950 as well as the Office Manual published in 1955 was an administrative instruction.
The change from 10 years to.
8 years ' experience was not only given effect to in the field of choice but also, recog nized in the Committee meetings of September 1968, April/May 1970 and February, 1972.
In September 1968, 16 persons were over 9 years ' experience (1) [1975] supp.
S.C.R.491,506 39 but less than 10 years ' experience.
None of these persons was however selected to be placed on the selection list.
In April/May 1970, 14 persons were over 9 years experience but less than 10 years ' experience, and 24 persons were over 8 years ' experience only.
Out of those only 7 who were all over 9 years ' experience were selected to be placed in the selection list.
In 1972 the Committee considered 25 persons over 9 years ' experience but less than 10 years ' in experi ence, and 27 persons over 8 years ' experience.
Out of these only 10 persons who were all over 9 years ' experience were selected to be placed in the selection list.
In the Committee meeting of July, 1974 the selection list prepared did not have any person except 4 emergency commissioned officers who had less than 9 years ' experience.
The last person in the seniority list selected was M.M. Joshi bearing No. 967 in the seniority list.
8 years ' experience as a working rule for promotion was publicly announced by the Minister in Parliament on 11 June 1971.
It is rightly said by the Attorney General that administrative instructions are followed as a guide line on the basis of executive policy.
It is not necessary to put the same on record in so many words.
In Bishan Sarup Gupta vs Union of India & Ors.
1975 Supp.
SCR 491 when the quota rule which was statutory ceased to have statutory effect after 5 years but the Government followed the principles as a guide line it was upheld by this Court in the application of the principle from 1957 to 15 January, 1959.
In the present case the requirement of 8 years was not only followed as a guide line in practice but was also recorded in the correspondence between the Finance and the Home Ministries.
The High Court said that the requirement of 8 years ' experience was to be included in the appropriate Recruitment Rules and until that was done the High Court held that 10 years ' experience held the field.
The High Court failed to consider the true effect of the correspondence between the finance and the Home Ministries and the Union Public Service Commission.
The Ministry of Finance by its letter dated 30 January 1963 stated that the condition of 8 years ' service for promotion was proposed to be retained.
The Home Minis try by its letter dated 20 February, 1963 pointed out that the requirement of 8 years ' experience for promotion did not strictly relate to seniority rules relating to Assistant Commissioners of Income Tax and should be delinked from such rules and should be appropriately included in the relevant Recruitment Rules.
Thus the Home Ministry and the Union Public Service Commission agreed in principle to the re quirement of 8 years ' experience and the Finance Ministry in practice changed the requirement of 10 years ' to 8 years ' experience.
The letter of the Finance Ministry proposing the retention of the requirement of 8 years experience was only in Grade I.
The minimum experience in Grade I proposed by the Board was approved by the Secretary as well as the Minister.
The High Court referred to the affidavits filed by M.G. Thomas in other proceedings.
In one of the affidavits affirmed by Thomas 40 on 8 March 1968 and referred to by the High Court in Special Civil Application No. 1365 of 1965 in the Gujarat High Court in paragraph 5 thereof Thomas said as follows: "The Depart mental Promotion Committee which met sometime in August, 1949 recommended that no officers should be promoted as Assistant Commissioners of Income Tax until he had worked for not less than 10 years as Income Tax Officers.
The Government of India agreed with the recommendation of the Departmental Promotion Committee that it was necessary in the interest of efficiency that the Assistant Commissioner of Income Tax should at least have 10 years of service as Income Tax Officer so that for the post ok Assistant Commissioner of Income Tax matured and seasoned officer may be obtained.
For arriving at the decision, the Govern ment of India was also influenced by the recommendation of Income Tax Investigations Commission".
The High Court also referred to paragraph 9 in the said affidavit of Thomas where he said as follows: "It can thus be seen that the seniority rules for Assistant Commissioner of Income Tax were mainly framed due to the situation created by the introduction of Income Tax Service Class I on an All India basis and the requirement of a minimum period of 10 years of service (later on reduced to.
8 years ' service) (as a requi site condition for promotion) this requirement of minimum service resulted in a senior Income Tax Officer who had not completed the required length of service being passed over by a junior Income Tax officers, who had completed the. required service.
To safeguard the interest of such senior Income Tax Officer rule 1 (iii) (b) meaning thereby 10 years ' rule was introduced which enabled the senior officers to regain their seniority on subsequent promotion".
The High Court also referred to the affidavits of Thomas in Civil Writ Petition No. 196 of 1970 in the Delhi High Court.
M.G. Thomas was an Under Secretary in the Ministry of Finance in 1964.
In the affidavit affirmed by Thomas in Writ Petition No. 196 of 1970 in the Delhi High Court he dealt with paragraph 39 of the petition of Bishan Sarup Gupta where it was said that paragraph 18, of section 1, Volume 1 of the Office Manual clause (b) mentioned about the eligibility of 10 years of minimum service before an Income Tax Officer would be considered for promotion to the post of Assistant Commissioner.
The High Court said that Thomas in his affidavit in reply had admitted the said statements and concluded that of 8 years ' rule had been introduced Thomas would not have missed to mention the same in his affidavit.
The High Court also referred to two features.
First, that it was not a proposal of anew rule of 8 years in place of existing rule of 10 years; secondly, it was an assumption that the existing rule prescribed the minimum period of 8 years ' service.
The High Court further referred to the Delhi High Court proceedings in Writ Petition No. 196 of 1970 where Counsel for the Union said that the Government expected new rules to be framed under Article 309 to limit the field of choice to those who had 8 years ' service to their credit as Income Tax Officers.
The High Court read this argument of counsel for the Union in the High Court to concede that no change in the rule of 10 years ' service as Income.
Tax Officer was made so as to reduce the period from 10 years to 8 years.
41 The Central Board of Revenue as appears in No. F. 1/19/60 Ad.
II at a meeting on 2 May, 1959 approved the idea of laying down the.
minimum period of service uniformly for the three wings of the Central Board of Revenue for purposes of determining the eligibility of officers for promotion.
It was decided that before an officer was promoted to a higher post he must have put in a period of minimum service as follows: For promotion to Deputy Collector/Assistant Commissioner (Grade Rs. 1000 1400) minimum service pre scribed was 8 years ' service in Class I posts.
For promo tion to Collector (Grade Rs. 1300 1600) the minimum serv ice prescribed was 12 years in Class I post out of which at least two years should be in the grade of Deputy Collector.
For promotion to.
the post of Collector (Grade Rs. 1600 1800) the minimum service prescribed was 14 years in Class I posts provided that for promotion as Collector of Central Excise (scale Rs. 1600 1800) the officers should have worked at least two years in the scale of Rs. 1300 1600.
For promotion to Collector Grade I/Commissioner Grade I (scale Rs. 1800 2000) the minimum service prescribed was 16 years in Class I posts.
For promotion to Selection Grade posts of Collectors/Commissioners the minimum service prescribed was 20 years in Class I posts.
The Secretary in the note mentioned that he would prefer the alternative of keeping the rule and relaxing it in suitable cases.
This note of the Secretary shows that he preferred the retention of the rule in the other 4 grades, namely.
Collector Grade Rs. 1300 1600, Collector Grade Rs.1600 1800, Collector Grade I/Commissioner Grade I Grade Rs.1800 2000 and Selection Grade Posts of Collectors/ Com missioners.
That is apparent from the fact that the Board suggested the retention of minimum service in Grade 1(Assistant Commissioners) but not in the other four grades including the Selection Grade.
The Minister preferred the deletion of the rule about Selection Grade.
Thus the mini mum experience in Grade I proposed by the Board was approved by the Secretary as well as the Minister.
The minutes of the meeting of the Central Board of Revenue of 22 October 1960 show that the Board of Revenue decided 'that the minimum service of 8 years in Class I Service may be prescribed in the case of Deputy Collector/Assistant Commissioners (Grade Rs.1100 1400).
The affidavit evidence of Thomas shows that the minimum period of 10 years was later reduced to 8 years.
The affi davit does not show that the requirement of 10 years ' serv ice was maintained.
In the Delhi High Court proceedings Bishan Sarup Gupta in his petition made reference to cer tain administrative instructions.
Thomas in answer to those paragraphs did not have any occasion to say anything otherwise.
Further counsel for the Union in the Delhi High Court merely stated that the Government was expecting rules to be framed under Article 309.
This does not mean that the requirement of 8 years ' experience as an administrative practice did not prevail.
The High Court was in error in treating the affidavit evidence of Thomas in other proceed ings as a statement of fact that 8 years ' rule had not been introduced.
This affidavit evidence in other proceedings is torn 42 out of context and is misread by the High Court without going into the question as to whether such affidavit evi dence is admissible in evidence.
It is apparent that the entire affidavit evidence as well as the submission on behalf of the Union is that the requirement of 10 years ' experience be replaced by 8 years.
Administrative practice as indicated in the Department Promotion Committee meetings and the Minister 's statement in Parliament supported that contention of the Union.
It is a question of construction of correspondence as to whether 10 years ' rule was replaced by 8 years ' rule.
The fact that no rules under Article 309 were framed does not detract from the position that the previous administrative instruction of 10 years ' experience was modified to 8 years ' experience.
It was suggested on behalf of the respondents that the various affidavits and documents asserted that the require ment of 10 years ' experience had been abrogated and it was not open to the Government to take the stand that require ment of 10 years ' rule was modified or changed.
The conten tion is without any substance because the consistent posi tion on behalf of the Union has always been that the re quirement of 10 years ' experience was modified to 8 years and the Gujarat High Court considered the question whether 10 years ' experience was abrogated or modified.
The second question is whether the requirement of 10 years ' experience was a statutory rule.
The High Court held that the requirement of 10 years ' experience is not a statutory rule.
Counsel for the respondents contended that the requirement of 10 years ' experience is statutory because the letter dated 16 January 1950 is by the Government of India and the Government of India has authority to frame rules and one of the letters dated 21 July, 1950 referred to it as a formal rule.
The contention is erroneous because there is a distinction between statutory orders and adminis trative instructions of the Government.
This Court has held that in the absence of statutory rules executive orders or administrative instructions may be made.
(See Commissioner of Income Tax Gujarat vs
A. Raman & Company(1).
The letter dated 16 January 1950 written by an Under Secretary in the Ministry of Finance does not prove that the requirement of 10 years ' experience for promotion to the post of Assistant Commissioner was a rule made by the Gover nor General or any person authorised by him under section 241 (2) of the Government of India Act, 1935.
Furthermore, there is no basis for any authentication under section 17 of the 1935 Act in the letter of 16 January, 1950.
In the preface to the Manual published in 1955 it is specifically stated that Vol.
I of the Manual contains statutory rules and Vol.
II contains administrative instructions.
The requirement of 10 years ' experience is in Vol.
II of the Manual.
In S.G. Jaisinghani vs Union of India & Ors.(2) it is stated at pp.
717 718 that the quota fixed by the Government in its letter dated 18 October, 1951 must be deemed to be fixed in exercise of the statutory (1) (2) ; 43 power under Rule 4 of the Recruitment Rules.
There is no such statutory rule under which the letter of 16 January, 1950 was written, Counsel on behalf of the respondents contended that the requirement of 10 years ' experience laid down in the letter dated 16 January, 1950 had the force of law because of Article 313.
Article 313 does not change the legal charac ter of a document.
Article 313 refers to laws in force which means statutory laws.
An administrative instruction or order is not a statutory rule.
The administrative in structions can be changed by the Government by reason of Article 53(1)(a) itself.
The High Court said that even if the requirement of 10 years ' service is not statutory, it is binding on the Gov ernment and is a condition of service.
Counsel for the respondents contended that the word "ordinarily" in the rule imposes an obligation on the Government not to consider any Income Tax Officer with less than 10 years ' experience for promotion except in extraordinary circumstances.
The requirement of 10 years ' experience on the face of it con fers a discretion on the authorities to consider Income Tax Officers if according to.
the authorities the circumstances so require.
What the circumstances are or should be are left entirely to the decision of the authorities.
The Central Board of Revenue by a letter dated 21 July, 1950 a few months after the letter dated 21 July, 1950 a few months after the letter dated 16 January, 1950 which spoke of 10 years ' experience stated that the insistence on a minimum period of experience, cannot be regarded as affecting the conditions of service.
In the letter dated 21 July, 1950 it was said that the requirement as to 10 years ' experience is sufficiently elastic and all Income Tax Officers with more than 9 years ' experience could be considered for promotion.
The letter dated 21 July, 1950 was referred to by this Court in Union of India vs Vasant Jaygram Kamik & Ors(1).
It appears in that case that in November, 1951 the case of officers who had completed 9 years ' gazetted service were considered and the Committee further decided to consider for promotion in the near future officers who had completed 8 years of service before 31 December, 1951.
In 1953 officers who had completed 8 years ' service were considered for promotion.
The expression "ordinarily" in the requirement of 10 years ' experience shows that there can be a deviation from the requirement and such deviation can be justified by reasons.
Administrative instructions if not carried into effect for good reasons cannot confer a right.
(See P.C. Sethi & Ors.
vs Union of India & Ors.
The requirement of 10 years ' experience cannot be considered by itself.
It is to be read along with administrative instructions of 16 May, 1957.
The reason is that the requirement of 10 years ' experience is for being considered for promotion.
In para graph 2 of the letter of 16 May, 1957 containing the said instructions it is said that the Committee should first decide the field of choice.
namely, the number of eligible officers awaiting promotion who should be considered to be included in the seniority list provided that an officer of outstanding merit may be included in the list even.if he is outside the normal List.
(1) ; (2) ; 44 For the foregoing reasons our conclusions are these: First 10 years ' experience was modified to 8 years ' experi ence.
Second there was no statutory rule requiring 10 years ' experience.
Third the facts and circumstances merit ed the exercise of discretion which was bona fide exercised by determining the field of choice.
Fourth there was no deviation from 10 years ' experience because of the modifica tion to 8 years ' experience.
Fifth there could not be insistence on 10 years ' experience as conditions of service.
The next question is what should have been the field of choice.
The two groups of Income Tax Officers in Class I, namely, the direct recruits and the promotees have always found that the field of choice has been prepared strictly on the basis of running seniority in the seniority list of Income Tax Officers Class I.
In the three decisions of this Court relating to these officers Jaisinghani 's case, Bishan Sarup Gupta 's case and Bishan Sarup Gupta 's case (supra) it will be seen that since 1962 there has been a long fight between direct recruits and promotees mainly in respect of seniority list of income Tax Officers Class I.
This strug gle regarding seniority would have hardly any meaning unless the two groups fought to gain higher positions in the Seniority List only for the purpose of being in the field of choice for consideration for promotion to the post of As sistant Commissioner.
if this was not so and if only a cer tain number of years ' requirement was the only consideration for being in the field of choice, this requirement would have.
been fulfilled in any case without a higher place in the seniority list.
From 1963 the field of choice has always been in a running order of seniority.
This has been the administrative practice for over 10 years.
There were 112 vacancies and 10 anticipated vacancies in 1974.
The Committee was to make a select panel of 122 offi cers.
If the field of choice has to be prepared on the basis of running seniority, and if 10 years ' experience had been adhered to, there would not have been more than 95 officers in the field of choice although the number of vacancies was 122.
This fact alone will entitle the author ities to deviate from the rule of 10 years ' experience.
By reason of the violation of the quota rule since 1952 benefiting the promotees this Court issued the mandamus in Jaisinghani 's case (supra).
The collapse of the quota rule and seniority rule from 16 January, 1959 led to the judgment of this Court dated 16 August 1972 in Bishan Sarup Gupta 's case (supra).
The introduction of the roster system of 1 direct recruit and 1 promotee being placed alternately in the order of seniority with effect from 16 January, 1959 was upheld by this Court in the judgment dated 16 April, 1974 in Bishan Sarup Gupta 's case (supra).
As a result oF the seniority list being upheld by this Court by the deci sion dated 16 April, 1974 many promotees lost their earlier places in the Seniority List.
This Court on 16 April, 1974 in Bishan Sarup Gupta 's case (supra) at page 114 of the report said "In the case before us in the absence of a rule determining inter se seniority between the two classes of Income Tax Officers, there is really no integration of the service, which is unavoidably necessary for the purpose of effective promotions.
One cannot speak 45 of promotions from a cadre unless it is fully integrated.
" There was a change in the seniority list from what prevailed at least in 1952.
The requirement of 10 years ' experience could not be given effect to in such a changed situation and the expression "ordinarily" would hardly apply to such a changed situation without destroying the integration and restoring to the promotees the position which they had enjoyed in the past with the Quota Rule and the Seniority Rule and which they lost as a result of the last decision of this Court dated 16 April, 1974.
If the respondents ' contention that the field of choice shall be restricted to 10 years ' experience only and the field of choice should have been at least five times the number of vacancies, the result would have been that out of 560 persons in the field of choice, 474 persons would have been promotees and 86 persons would have been direct re cruits and the last direct recruit in the seniority list would have been No. 873 and No. 874 to No. 1922 would have been all promotees.
If the above basis suggested by the respondents were followed 429 persons all direct recruits and all senior officers in the seniority list would have been ignored in the field of choice.
That would be unjust, unfair and upsetting the decision of this Court dated 16 April, 1974.
In the letter of 16 May 1957 it is stated that the field of choice wherever possible should extend to 5 or 6 times the number of vacancies expected within a year.
The letter contained administrative instructions from the Home Ministry generally to all Ministries and was not meant specially for the Board of Revenue.
These administrative instructions have been changed in the matter of promotions from Income Tax Officers to Assistant Commissioners at least from 1963 by the administrative practice of having in the field of choice generally three times the number of vacancies.
In the Committee meeting held on 16 March, 1963 the Committee considered the names of first 33 eligible Income Tax Offi cers in order of existing seniority for 11 vacancies.
In the meeting of the Committee held on 26 and 27 August, 1963 the Committee decided to consider the cases of 30 officers in order of seniority for 10 vacancies.
In the Committee meeting held on 3 March, 1964 the Committee considered for 21 vacancies the names of 60 persons in order of seniority.
At the Committee meeting held on 5 and 7 December, 1964 for 18 vacancies the Committee decided to consider the cases of 60 officers in order of seniority,.
At the meeting held on 4 July, 1965 the Committee considered 60 Income Tax Officers in order of seniority for promotion to 20 vacancies.
At the Committee meeting held on 4 and 6 December, 1965 the Commit tee considered 122 persons in order of seniority for 45 vacancies.
In December, 1965 the Committee considered 114 senior most Income Tax Officers and 48 were promoted as Assistant Commissioners.
At the meeting held on 17 May, 1966 the Committee considered the case of 65 officers and approved the promotion of 48 officers.
At the meeting held on 16 and 17 September, 1968 the Committee considered 240 persons for promotion to 90 posts.
In September, 1968 the Committee considered the cases of 16 officers who had less than 10 years ' experience.
The Committee in February 1969 considered 61 persons for 20 posts.
In September, 1969 the Committee considered 105 persons for promotion to 35 posts.
46 There is a note made by Thomas in the month of February, 1970 in F. No. 20/2170 Ad.
VI to the effect that if officers with less than 8 years ' service and their juniors are ex cluded from the list of officers to by considered by the Committee for 90 vacancies arising during the year only 193 officers will be available.
This is said to be less than three times the number of vacancies but this could not be helped unless junior officers are considered over the head of their seniors.
The number of such juniors officers with 8 years ' service is also limited, namely, 11.
In the circum stances, the selection was made from 193 officers.
In April, 1970 the Committee had to select 80 persons for promotion.
They desired that 240 names should normally be considered.
The Members however stated that the.
Ministry had already furnished the names of 193 eligible officers and there were no more eligible officers who could be consid ered.
The Committee accordingly considered those 193 offi cers in order of seniority.
In April and May 1970 the Committee considered the cases of 38 persons with less than 10 years ' experience.
In 1972 there were 84 vacancies and 10 more vacancies were likely to arise.
Therefore for 94 selection posts the field of choice should normally have been 3 to 5 times the number of vacancies.
It was found that there should have been at least 300 officers.
There were 213 officers with 8 years ' experience.
There were some promotees with more than 8 years ' experience but they were junior to the direct recruits.
As the direct recruits had not completed 8 years ' service their juniors were not considered for promotion over them.
In the background of these facts and circumstances it was not possible to have 5 or 6 times the number o.f vacan cies in the field of choice for the simple reason that the Committee required 8 years ' experience for promotion to the post of Assistant Commissioner.
If the field of choice had to be based on running seniority the Committee could rightly only have 276 officers in the field of choice in the present case.
The next question is whether the Committee evaluated the merit of persons in the field of choice.
The High Court held that in the field of choice the evaluation of merit of persons was not properly done.
The decision of the High Court is wrong for the following reasons.
The letter dated 16 May, 1957 indicates that the Committee was first to decide the field of choice.
The cardinal feature which is to be kept in the forefront is that the field of choice is based on running seniority in the seniority list and evalua tion of merit does not come into picture for deciding the field of choice.
Paragraph 3 of the said letter states that those in the field of choice who are considered unfit should excluded from consideration.
Under paragraph 4 of the letter evaluation of the remaining officers on the basis of merit has to be done by classifying the officers under three different categories,namely, 'outstanding ', 'very good ' and 'good '.
Paragraph 4 of the letter states that the selection list is to be prepared by placing the names of officers in the said three categories, without disturbing the seniority inter se within each category.
47 In the present case in view of 112 actual vacancies the Government sent 336 names for the field of choice, that is, three times the number of vacancies.
Since 1963 the Commit tee has been receiving from the Government the names of persons forming three times the number of vacancies.
The 336 names sent by the Government were in the running order of seniority between S.M. Islam No. 155 in the seniority list and R.N. Dave No. 1186 in the seniority list.
Under paragraph 2 of the letter dated 16 May, 1957 it is the function of the Committee to decide the field of choice.
The Committee proceeded on the basis of 8 years ' experience and thus could not possibly have in the field of choice any name from No. 1131 onwards because every alternate number thereafter had less than 8 years ' experience.
The Committee stopped at No. 1123.
The Committee at the meeting held on 23, 24 and 25 July 1974 assessed the merits of 145 persons in order of seniori ty first.
After such assessment the Committee found three officers No. 1, 30 and 109 in the list as not yet fit and excluded them.
The Committee also excluded 4 officers whose findings were in sealed cover or whose reports were not yet complete (No. 2, 3, 6 and 138 in the Committee List).
These 7 officers were excluded from further consid eration for the selection list.
In accordance with para graph 3 of the letter 16 May, 1957 the Committee considered the remaining 138 officers and assessed their merits and put them in three categories.
The Committee found only one officer "outstanding", namely No. 16 in the list, 114 offi cers "very good" and 7 Scheduled Castes/Scheduled Tribes officers were 'good '.
These 7 Scheduled Castes and Sched uled Tribes officers were No. 21, 24, 26, 90, 91, 93 and 94 in the list.
The respondents contended that these 7 Sched uled Castes/Scheduled Tribes officers should have been given a grade higher than the grade assessed by the Committee because of the Home Ministry Instructions dated 11 July, 1968.
The respondents ' contentions are incorrect for these reasons.
In paragraph 2 of the Home Ministry instructions dated 26 March, 1970 on the subject "Concessions to Sched uled Castes and Scheduled Tribes in posts filled by promo tion Class I Services/ posts" it was laid down inter alia that the Scheduled Castes/Scheduled Tribes officers, who were senior enough in the zone of consideration for promo tion so as to be within the number of vacancies for which the selection list has to be drawn, would be included in that list provided they are not considered unfit for promo tion.
In paragraph 1 of these instructions, reference was made to the Home Ministry instructions dated 11 July, 1968.
It would be found from those instructions as 'also the Home Ministry instructions dated 26 March, 1970 that the July, 1968 instructions applied in the case of promotions from Class III to Class II and Within Class II and from Class II to the lowest rank or category to Class I but had no appli cation in respect of promotion within Class I.
The Committee found No. 16 to be 'outstanding ', 114 (No. 2 to 115) 'very good ' and 7 Scheduled Castes/Scheduled Tribes officers 'good. ' and they were to be included in the selection list vide Home Ministry instructions dated 26 March, 1970.
The Committee next assessed the merit of the rest of the 276 officers to ascertain whether 48 any of them was 'out standing '.
If any one among these remaining officers was not found 'outstanding ' but was only 'very good ' he would not come within the selection list because the selection list was prepared, after evaluating the merits of the officers on the basis of seniority in the seniority list in accordance with the fetter dated 16 May, 1957.
Paragraph 4 of that letter was followed by the Committee along with the Home Ministry instructions.
It would not be necessary for the Committee after having con sidered 145 to put the others in the category of 'very good ' when the Committee assessed their merits and found them to be not 'outstanding '.
After 122 senior officers were as sessed and the Committee found that no other officers junior to them could be assessed to the higher category namely, 'outstanding ' it would be fruitless exercise to find out who among these officers were very good ' or 'good ' or 'not yet fit '.
The reason is obvious.
Those in the selection list of 122 who had been found to be 'very good ' could not be supplanted by others who were 'very good ' Only 'outstand ing ' persons who would be junior to the category of 122 'very good ' would surpass the category of 'very good '.
Therefore the Committee rightly considered the cases only to find ' out whether there was any one outstanding and the Committee found none of them to be 'outstanding '.
The Government sent the names of 336 officers in the running order of seniority.
Out of 336 the Committee found 276 to be fit for the field of choice.
The Committee found 1 'outstanding ', 114 'very good ' and 7 Scheduled Castes/Tribes 'good '.
The respondents contended that the rest 59 were not at all considered by the Committee.
This contention is not acceptable for these reasons.
From No. 1131 in the seniority list every alternate number was an officer with less than 8 years ' experience.
Under the letter of 16 May 1957 it is the Committee and not the Gov ernment which decides the field of choice.
When the Commit tee found according to the running seniority No. 1131 onwards could not be in the field of choice the Committee did not put the names of the 59 officers in the field, of choice.
The question of the evaluation of the merits of these 59 officers did not, therefore, arise because first the seniority list was Considered by the Committee and second the Committee took into consideration only those who were in the seniority list and fulfilled 8 years ' experi ence.
It is wrong to hold that because the Government sent the names of 336 persons for consideration by the Committee the field of choice consisted of 336 persons.
The field of choice is to be determined by the Committee.
The Committee considered 276 names as fit to be included in the field of choice.
It is erroneous to suggest that there were 336 names in the field of choice.
The field of choice consist ed.
of 276 names as determined by the Committee whose juris diction it was to determine.
The Committee considered upto No. 1123 in the seniority list to be in the field of choice.
Officers from 1124 to 1130 were not included by the Commit tee either because they had retired or joined the Indian Administrative Service and in any event no complaint has been made on their behalf.
The Committee found that from 49 No. 1131 onwards every alternate officer had not completed 8 years ' service and therefore they could not be put in the field of choice according to the Committee.
The contention of the respondents that there were 336 officers in the field of choice and the Committee did not consider all the 336 persons unmeritorious.
The respondents next contended that persons bearing No. 877, 879, 881 and 883 in the seniority list had been put on the selection list although they had less than 8 years ' experience.
There is no substance in the ' contention for the following reason.
These 4 officers were taken on the ground that they were ex military officers recruited to the Income Tax Department in 1968 and were deemed to have been recruited in 1964 by virtue of the Ministry of Home Affairs Notification dated 4 October, 1967.
Another submission was made on behalf of the respondents that after the Committee had put different persons in three categories 'outstanding ', 'very good ' and 'good ' the Commit tee should have further evaluated the merit of all officers inter se within each of the said three categories.
This submission is contrary to the specific provision of para graph 4 of the letter dated 16 May, 1957.
Further within the category of 'very good ' there could not be any further intra specific assessment of those who were 'very good '.
A criticism was made by the respondents that the assess ment was to be only on merit and not seniority cure merit.
This contention is wrong.
Paragraph 2 of the letter of 16 May, 1957 states that the field of choice is to be decided by the Committee.
No question of merit arises in deciding the field of choice.
The field of choice is only on the basis of running seniority.
The question of merit arises after the field of choice is decided.
The selection was correctly done strictly on merit in accordance with para graphs 3 and 4 of the letter dated 16 May. 1957.
The Commit tee decides the field of choice in the running order of seniority.
The Committee excludes names from the field of choice who are considered unfit for promotion.
The remaining officers are classified as 'outstanding ', 'very good ' and 'good ' on the basis of merit.
The selection list is pre pared by placing the names in the order of these three categories.
That inter se seniority of officers in the selection list under each category is not disturbed.
These are the instructions in the aforesaid letter.
It will thus be. seen that seniority is the sole criterion for determin ing the field of choice in the running order of seniority and merit is the sole criterion for putting the officers in the selection list in each category according to merit.
Finally the contention of the respondents is that the date for determining the eligibility of officers for promo tion to the posts as Assistant Commissioners should have been decided by the Committee by bearing in mind the two dates namely, 21 December 1972 and 29 November 1973.
21 December 1972 is the date when this Court permitted the Union Government to make ad hoc promotions.
21 March 1973 and 29 November 1973 are the two dates when the Central Board of Direct Taxes promoted 59 and 48 officers respec tively.
This Court in the order dated 21 December, 1972 stated that the Government would be entitled to appoint people in order of seniority determined according to the date 5 1458SCI/76 50 Of continuous officiating appointment in Class I subject to the suitability which would be decided by the Central Board or Direct Taxes.
This order was made without prejudice to the contentions of the parties or their rights in the ap peals.
Pursuant to the interim order of this Court the Government made two orders dated 21 March 1973 and 29 Nov ember 1973 provisionally promoting 59 and 48 officers re spectively.
In each of the Government orders it is specifi cally stated as follows: "The above promotions are purely ad hoc and have been made on the basis of the suitability as decided by the Central Board of Direct Taxes in terms of directions issued by this Court in their order dated 21 December 1972.
These promotions will not confer any claim for continued "officiation" (sic) in the grade of Assistant Commissioner of Income Tax or for seniority in that grade.
Appointments against these posts will eventually be made on the basis of the revised list of seniority of Income Tax Offices Class I as finally approved by this Court and on selection by a duly constituted Departmental Promotion Committee to be convened in accordance with the prescribed procedure.
The promotions ordered will not establish any claim for eligibility or for selection on merit by a proper ly constituted Departmental Promotion Committee when the same is convened".
It is manifest from the order of this Court and the two orders made by the Government pursuant to this Court 's order that these 107 promotions were purely provisional or ad hoc and were made by the Central Board of Direct Taxes and not by the Committee which is the authority for determining promotions.
Further these provisional promotions were not made in conformity with the letter of 16 May 1957.
It is distinctly stated in the aforesaid two Government orders that appointments against these posts will eventually be made on the basis of revised seniority of Income Tax Offi cers Class I as finally approved by this Court and on selec tion by a duly constituted Departmental Promotion Committee to be convened in accordance with the prescribed procedure.
On 9 February 1973 the Income Tax Officers (Class I) Service (Regulation of Seniority) Rules, 1973 were made under Article 309 See Bishan Sarup Gupta 's case (supra).
The revised seniority list of Income Tax Officers Class I was made on the basis of the Income Tax Officers (Class I) Service (Regulation of Seniority) Rules, 1973 and was ap proved by this Court on 16 April, 1974.
See Bishan Sarup Gupta 's case (supra).
The selection list was made by the Committee after it met on 23, 24 and 25 July, 1974.
Under paragraph 2 of the letter dated 16 May, 1957 the Committee was to decide the field of choice by including therein eligible officers awaiting promotion.
This means that whether an officer is eligible or not should be decided with reference to the date of the Committee meeting.
This has always been done at all the Committee meetings.
The respondents contended that the regularisation of 107 promotees had to be done from the date of original promo tions on ad hoc basis.
In this connection, the respondents relied on the observations of this Court in Bishan Sarup Gupta 's case (supra) at p. 506 of the report.
The observa tions relied on are that after the fresh seniority 51 list is made in accordance with the directions given by this Court in Bishan Sarup Gupta 's case (supra) it would be open to any direct recruit or promotee to point out to the de partment that in the selection made to the post of Assistant Commissioner from 1962 onwards he, being otherwise eligible, is entitled on account of the new seniority given to him to be considered for promotion to the post of Assistant Commis sioner.
The observations of this Court in Bishan Sarup Gupta 's case (supra) are that if as a result of the fresh seniority list it is found that any officer was eligible for promotion to the post of Assistant Commissioner on account of his place in the new seniority list, the department might have to consider his case for promotion on his record as on the date when he ought to have been considered, and if he would be selected his position will be adjusted in the seniority list of Assistant Commissioners.
The object is to see that the position of such a person is not affected in the senior ity list of Assistant Commissioners because he is actually promoted later pursuant to the new seniority list, although according to the new seniority list itself he should have been promoted earlier.
The observations do not mean that although the Committee can meet for the selection of offi cers for promotion to the post of .Assistant Commissioner only after the seniority list is approved by this Court, the selection would be deemed to be made at the time when a vacancy in the post of Assistant Commissioner occurred and the eligibility of officers for selection will be determined by such deemed date of selection.
No employee has any right to have a vacancy in the higher post filled as soon as the vacancy occurs.
Government has the right to keep the vacancy unfilled as long as it chooses.
In the present case, such a position does not arise because of the controversy between two groups of officers for these years.
The seniority list which is the basis for the field of choice for promotion to the post of Assistant Commissioner was approved by this Court on 16 April, 1974.
Promotions to the post of Assist ant Commissioners are on the basis of the selection list prepared by the Committee and are to be made prospectively and not retrospectively.
For the foregoing reasons the judgments and orders appealed against are set aside.
The selection list made by the Departmental Promotion Committee forming the subject matter of these appeals is held to be correct, lawful and valid.
Parties will pay and bear their own costs.
V.P.S. Appeals allowed.

dataset_name: IN-Abs

summary/full:
The Government of India, in 1950, framed a rule for promotion of an Income Tax Officer as Assistant Commis sioner and it was published as rule 18 in Vol.
I1 of the Office Manual published in 1955.
The rule provided that promotion shall be strictly on merit and that no one should ordinarily be considered for promotion unless he has com pleted at least ten years service as Income Tax Officer.
In 1957, a memorandum was issued by the Central Board of Reve nue containing the following principles for proration of Income Tax Officers Class I as Assistant Commissioners.
Greater emphasis should be laid on merit as a criterion.
The Departmental Promotion Committee should first decide the field of choice, namely, the number of eligible officers awaiting promotion who should be considered for inclusion in the selection list.
An officer of outstanding merit may be included in the list even if he is outside the normal field of choice.
The field of choice wherever possible should extend to 5 to 6 times the number of vacancies expected.
From among such officers those who are considered unfit for promotion should be excluded and the remaining should be classified as 'outstanding ' very good ' and 'good ' on the basis of merit as determined by their respective records" of service.
The selection list should then be prepared by placing the games in the order of these three categories without disturbing the seniority inter se within each category.
Promotions should strictly be made from such selection list in the order in which the names are finally arranged.
The selection list should be periodically reviewed removing from the list names of persons who have been promoted and including fresh names.
On 16th August 1972 this Court set aside the seniority list in the first Bishan Sarup Gupta case [1975] Supp.
SCR 491 and gave directions for preparing a fresh list.
On 21 December 1972, the Government applied to this Court for making ad hoc promotions and the court permitted them to do so.
Accordingly, in March 1973 and November 1973 the Board promoted 59 and 48 Income Tax Officers respectively as Assistant Commissioners.
It was distinctly stated in those two orders that the ad hoc appointments made against those posts were provisional and that the appointments eventually be made on the basis of the revised seniority list of Income Tax Officers Class I as finally approved by this Court, and on selection by a duly constituted Depart mental Promotion Committee in accordance with the prescribed procedure.
In February 1973, the Income Tax Officers (Class I) Service (Regulation of Seniority) Rules, 1973, were made and a revised seniority list of Income Tax Officers Class I was made on the basis of those rules.
The list as well as the Rules were approved in the second Bishan Sarup Gupta Case ; From such seniority list the Depart mental Promotion Committee made a selection list in July 1974, for proration of Income .Tax
Officers, Class I, as Assistant Commissioners.
There were 112 vacancies and the Government sent 336 names in the running order of seniority for consideration of the field of 29 choice.
The Committee followed the instructions in the 1957 Memorandum an.d found 276 to be fit for the field of choice, assessed the merits of 145 persons in order of seniority, found one officer outstanding, 114 very good, and 7 Sched uled Castes/Tribes officers good, according to the instruc tions.
The Selection list was challenged in various High Courts.
Two of the High Courts held in favour of the peti tioners and the other High Courts gave interim orders stay ing the operation of the Selection List.
In appeals by the Union of India to this Court, the respondents sought to support the judgments in their favour on the following contentions : (1) The requirement in the rule regarding 10 years experience was not abrogated as contended by the Government and the affidavits field in the various proceedings on behalf of the Union as well as the petitioners show that the 10 year rule was in force and was followed (2) Rule 18 has the force of law under the Government of India Act, 1935, and hence is existing law within the mean ing of article 366(10) of the Constitution and also because it was incorporated in the Office Manual issued by the Govern ment of India in exercise of its executive power under article 53.
(3) The rule constitutes one of the conditions of serv ice and, therefore, should be followed.
(4) The rule imposes an obligation on the Union Govern ment to Consider 'ordinarily ' only Officers of ten years service, but the selection list was prepared in violation of the rule in that officers of 8 years experience were considered.
(5) The selection has been made in complete violation of the principles set out in the 1957 memorandum and was entirely arbitrary.
(6) The promotion should be considered as on 21 December 1972 when the Government applied to this Court for permis sion to make ad hoc appointments, and on the two dates when the Government actually made 107 (59 1 48) ad hoc promotions and it Was the duty of the Committee to regularise the 107 promotions as from the dates of the original promotion and to consider the eligibility of an officer for promotion as on those dates, and this not having been done.
the selection list was illegal being contrary to the observations in the first Bishan Sarup Gupta 's case.
Rejecting these contentions of the respondents, allowing the appeals, and upholding the Selection List, HELD: (1)(a) The requirement Of 10 years experience in r. 18 was modified to 8 years experience.
The correspond ence between the Finance Ministry and Home Ministry and the U.P.S.C. shows that there was concurrence with the change.
The High Court was in err, or when it said that the require ment of 8 years experience must first be included in the appropriate recruitment rules and that until that was done 10 years experience held the field.
8 years experience as a working rule for promotion was publicly announced by the Minister in Parliament.
Administrative instructions are followed as a guide line on the basis of executive policy.
The requirement of 8 years was followed as a guide line in practice in 1968, 1970 and 1972.
The requirement was thus not only modified but was given effect to.
[39F] (b) The High Court was in error in treating the affida vit evidence of an officer of the Government, in other proceedings, as a statement of fact that the 8 years rule had not been introduced.
This affidavit evidence is torn out of context and is misread by the High Court without going into the question as to whether such evidence is admissible.
The entire affidavit evidence as well as the submissions made on behalf of the 'Union Government is that the requirement of 10 years experience is replaced by one of 8 years.
It is a question of construction of.
the correspondence as to whether the 10 years rule was replaced by 8 years rule.
The fact that no rules under article 309 were 30 framed does not detract from the position that previous administrative instruction of 10 years experience was modi fied to 8 years experience.
The various affidavits and documents show that the consistent position on behalf of the Union has always been that the requirement of 10 years experience was modified to one of 8 years.
[41H; 42A B] (2) The rule is not a statutory rule.
[42D] (a) The contention that because Government of India has authority to frame rules the letter of 16th January 1950 in which the rule was framed should, therefore, be treated as a formal ' rule is erroneous since there is a distinction between statutory orders and administrative instructions of the Government.
The change was recorded by means of correspondence as an administrative instruction. 'In the absence of statutory rules, executive orders or administra tive instruction may be made.
[42E F] Commissioner of Income Tax Gujarat vs A. Raman & Compa ny. , referred to.
(b) The letter of 16th January 1950 written by an Under Secretary in the Ministry of Finance does not prove that it is a rule made by the Governor General or any person autho rised by him under section 241(2), Government of India Act, 1935.
Furthermore, there is no basis for any authentication under section 17 of the 1935 Act in the letter.
[42G] (c) In the preface to the Office Manual published in 1955 it is specifically stated that Vol.
I contains statuto ry rules and Vol.
II, in which r. 18 occurs, contains only administrative instructions.
[42G] S.C. Jaisinghani vs Union of India & ors.
[1967] 2 S.C.R. 70, referred to.
(d) Article 313 refers to laws in force which mean statutory laws.
An administrative instruction or order is not a statutory rule or law.
The administrative instruc tions can be changed by the Government by reason of article 63(1).
Article 313 does not change the legal character of a document.
[43B] (3) The High Court erred in holding that the 10 year rule is a condition of service.
The word "ordinarily" in the rule does not impose an obligation on the Government not to consider any Income Tax Officer with less than 10 years experience, for promotion.
The rule on the face of it, confers a discretion on the authorities to consider Income Tax Officers of lesser years experience if the circumstances so require, and whether such circumstances exist should be left to the decision of the authorities.
Even the Central Board of Revenue, in a letter written a few months after the rule was framed, stated that the insistence of a minimum period of experience cannot be regarded as affecting the conditions of service.
In that letter.
it was stated that the requirement of 10 years experience is sufficiently elastic and all Income Tax Officers with more than 9 years experience could also be considered for promotion.
This letter was referred to by this Court in Union of India vs Vasant Jayarama Karnik [43C F] (4) It cannot be said that there is a deviation from the requirement of 10 years experience in preparing the Selec tion list.
That requirement was modified to one of 8 years experience.
The expression 'ordinarily ' in the rule shows that there can be deviation and such deviation can be justi fied by reasons.
Administrative instructions if not carried into effect for good reasons, cannot confer a right.
[43G] P.C. Sethi & ors.
vs Union of India & Ors.
[1975] 3 S.C.R. 201, referred to.
(5) The facts and circumstances in the present case merited the exercise of discretion which was bona fide exercised by determining the field of choice and from 1963, the field of choice has always been in a running order of seniority.
31 (a) There were, in the present case,112 vacancies and 10 anticipated vacancies and the Departmental Promotion Commit tee was to make a panel of 122 officers.
If the field of choice has to be prepared on the basis of running seniority and if 10 years experience had been adhered to, there would not have been more than 95 officers in the field of choice although the number of vacancies was 122.
This fact alone entitled the authorities to deviate from the rule of 10 years experience.
[44E F] (b) The requirement of 10 years experience could not be given effect to also because in the second Bishan Sarup Gupta case, this Court had directed that the two classes of Income Tax Officers, direct recruits and promotees, should first be fully integrated before determining inter se sen iority.
The expression 'ordinarily ' would hardly apply to such a changed situation without destroying the integration.
If the respondents ' contention that the field of choice shall be restricted to 10 years experience only and the field of choice should have been at least 5 times the number of vacancies the result would have been that out of 560 persons in the field of choice 474 persons would have been promotees and only 86 persons would have been direct recruits and 429 senior officers, who were direct recruits, would have been ignored.
That obviously would be unjust and unfair and also contrary to the decision of this Court in the second Bishan Sarup Gupta 's case.
[47BC] (c) As a result of administrative instructions issued, at least since 1963, for promotion of Income Tax Officers as Assistant Commissioners, the administrative practice is to take the field of choice generally of 3 times the number of vacancies.
The evidence shows that in the circumstances of this case, it was not possible to have 5 or 6 times the number of vacancies in the field of choice.
[46E] (d) The High Court was wrong in holding that in the field of choice, the evaluation o{ merit of persons was not properly done.
The 1957 Memorandum requires that the field of choice is based on running seniority and evaluation of merit does not come into picture for deciding the field of choice.
The question of merit comes in only in the preparation of the selection list.
Seniority is the sole criterion for determining the field of choice and merit is the sole crite rion for putting the officers in the Selection list.
[46G] In present case, the instructions in the 1957 memoran dum were strictly followed.
(e) The 7 Scheduled Caste/Tribes officers were not entitled to a grade higher than the grade assessed by the Committee, because, the Home Ministry instructions, regard ing concessions to Scheduled Castes and Tribes applied in the case of promotions from Class III to Class II and within Class II and from Class II to the lowest rank of Class I, but had no application in respect of promotion within Class I. [47E] (f) After 122 senior officers were assessed and 114 were found to be 'very good ', they could not be supplanted by other who were also 'very good '.
Only 'outstanding ' persons who would be junior to the 122 could surpass them.
There fore, the Committee rightly considered the cases of the officers remaining out of the 276 only to find out whether there was any one 'outstanding" as it would be a fruitless exercise to find out who among them was 'very good '.
[48B] (g) The contention of the respondents that the officers remaining out of the 336 sent up, were not at all considered by the Committee is not also acceptable.
When the Committee found, according to running seniority, that certain persons beyond a certain number could not be in the field of choice, the Committee did not put the names in the field of choice.
The question of the evaluation of their merits did not, therefore, arise.
It is wrong to hold that because the Government sent the names of 336 persons the field of choice consisted of all 336 persons.
The field is to be determined by the Committee and the Committee rightly con sidered 276 names as fit to be included.
[48F] 32 (h) There is no substance in the contention that 4 of the officers had less than 8 years experience, because, they were ex military officers recruited by virtue of a notifi cation of the Ministry of Home Affairs.
[49B C] (i) The contention that after putting the officers in the three categories they should further be evaluated on merit inter se within each category is contrary to the specific provision of the 1957 memorandum, and further, there could not be any further intra specific assessment of those who are already considered to be "very good".
[49D] (6) The date for determining the eligibility of officers has nothing to do with the dates on which ad hoc appoint ments were permitted and ad hoe appointments were, in fact, made.
The observations Of this Court in the first Bishan Sarup Gupta case, are that if as a result of the fresh seniority list, it is found that any officer was eligible for promotion on account of his place in the new seniority list, the Committee might have to consider his case as on the date when he ought to have been considered and his position adjusted in the seniority list of Assistant Commis sioners.
The observations did not mean that although the Committee can meet only after the seniority list is approved by this Court, the selection would be deemed to be made at the time when a vacancy in the post occurred and the eligi bility of officers for seleCtiOn should be determined by such deemed date of selection.
No employee has any right to a vacancy in the higher post as soon as the vacancy occurs.
The Government has a right to keep it unfilled as long as it chooses.
The seniority list which is a basis for the field of choice for promotion was approved by this Court on 16th April 1964 in the second Bishan Sarup Gupta case.
Promo tions to the post of Assistant Commissioners are on the basis of the Selection List prepared by the Committee and are to be made prospectively and not retrospectively.
[51 C D]


judgement:
ivil Appeal Nos.
1853(A) and 1854 of 1971.
Appeal from the Judgment and Order dated the 18th April, 1969 of the Madras High Court Madras in Tax Cases Nos. 18 and 19 of 1966.
V.S. Desai, J. Ratnamurthi and M.N. Shroff, for the Appel lant.
T.A. Ramachandran, for Respondent.
The Judgment of the Court was delivered by KHANNA, J.
This judgment would dispose of two civil appeals Nos.
1853(A) and 1854 of 1971 which have been filed on certificate by the Commissioner of Income tax against the judgment of Madras High Court (reported in answering the following two questions referred to it in two references under section 66(1) of 79 the Indian Income tax Act, 1922 in the affirmative in favour of the assessee and against the revenue: "1.
Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that for computing the reduction in rebate under Para D of Part II to the First schedule to the Finance Act, 1959 (in R. A. No. 169 of 1965 66) and of Finance Act, 1958,(in R.A. No. 168 of 1965 66) in the composition of profits of the year from which the dividend had been declared should be looked into, and 2.
Whether the Appellate Tribunal was right in law in holding that the paid up capital of the assessee company should be proportionately reduced for the purpose of reducing the rebate in Corporation Tax in the manner directed.
" The matter relates to the assessment of the respondent company for the assessment years 1958 59 and 1959 60.
For sake of convenience we may set out the facts relating to the assessment year 1958 59.
It is the common case of the parties that the decision about that year would also govern the point of controversy relating to the other year.
The assessee is a private limited company.
In the previous year ending on December 31, 1957 relevant for the assessment year 1958 .59, it declared a dividend of Rs. 99.000.
Its paid up capital was Rs. 1,65,000.
The total income of the assessee company was determined at Rs. 73,255 made up as under: Rs. Business Nil Other sources 26,554 Capital gains 46,701 Total income 73,255 As the dividend of Rs. 99,000 declared by the assessee company was in excess of 6 per cent of the paid up capital of the company, the Income tax Officer worked up the super tax payable by the. assessee as under: RS.
Corporation tax @ 50 % on Rs. 26,554 13,277 less rebate @ 30 % on Rs. 26,554 7,966.20 Reduction in rebate Up to 6%0 of the paid up capital 9900 .
Nil 6% to 10% of the paid up capital in 6600 @ 10% 660.00 Balance at 20% 82500 @ 20% 1,65,00.00 17,160.00 Balance carried forward to next year 9,193.80 The assessee company objected to the above computation of the super tax and took the matter in appeal to the Appel late Assistant Commissioner.
It w.as urged on behalf of the assessee that the dividend of Rs. 99,000 declared during the year ending 1957 was 80 out of the profits of the previous year which ended on December 31, 1956.
According to the assessee, the dividend income determined for the assessment year 1957 58 was Rs. 1,74,196 which included capital gains to the extent of Rs. 1,10,105.
The dividend of Rs. 99,000, it was urged, should be apportioned between the capital gain of Rs. 1,10,105 and the other income of Rs. 64,091 after taking into account the tax payable thereon.
The assessee computed the figures as under: Rs. Capital receipts not assessable 44,279 Capital gains is assessed less tax 75,423 Other income less tax 22,492 1,42,194 The assessee claimed that rebate should be reduced only with reference to the sum of Rs. 15,659 being proportionate part of the dividend declared during the previous year ending on December 31, 1957 which had come out of the other income assessed to income tax and super tax in the assessment year 1957 58.
The figure of Rs. 15,659 was arrived at by the assessee as under: 99,000 x 22,492 1,42, 194 The Appellate Assistant Commissioner accepted in princi ple the assessee 's contention that the components of the dividend should be considered with reference to the profits of the previous year.
He, however, computed proportionate dividend at a higher figure by including the capital gains of Rs. 75,423 with the sum of Rs. 22,492 as shown below: Rs. Net available profits attributable to assessed income (22,492 75,423) 97,915 Net available profits 1,42,194 Dividends declared 99,000 97,915 99,000 Proportionate dividend: =68,171 1,42,194 The Appellate Assistant Commissioner retained the paid up capital at Rs. 1,65,000 as per balance sheet with out apportionment on the basis of taxed and non taxed in come.
The department took the matter in appeal to the Appel late Tribunal.
The Tribunal dismissed the appeal hold ing that the "previous year" under Explanation (iii) to Paragraph D of Part II to the First Schedule to the Finance Act, 1958, refers only to the previous year out of the profits of which the dividends were declared and therefore the composition of the profits and gains of the company out of which dividends were declared had to be looked into for working out the proportion under Explanation (iii) to Para graph D of Part II to the First Schedule to the Finance Act of 1958.
At the instance of the Commissioner, the questions reproduced above were thereafter referred to the High Court.
81 In appeal before the High Court, it was argued on behalf of the revenue that dividends having been distributed during the accounting year relevant to the assessment year in question, it is that year alone which has to be taken into consideration for calculating the supertax under the appro priate Finance Act.
The fact that such profits were trace able to the profits earned during the year prior to the accounting year, according to the submission, was not of significance and had to be ignored for the purpose of work ing out the quantum of rebate in such super tax made avail able in the Finance Act.
It was accordingly urged that the year of distribution, namely, the accounting year, is the only basis for the calculation of the rebate.
As against that, it was submitted on behalf of the assessee that it would be unreal if the years in which the profits had been admittedly earned was to be ignored and reliance was placed for calculation of rebate on the ministerial act of distri bution.
The High Court, while answering the questions referred to it in favour of the assessee and against the revenue, observed us under: "If, therefore, 'distribution ' is thus to be understood as a ministerial act resulting from the indoor management of the company, can that be the sine qua non to decide the question of quantum of rebate to which the company would be entitled under a particular Finance Act? If the year in which distribution is to be effected is considered for purposes of the Finance Act and for the determination of the quantum of rebate, then it would result in a notional implementation of the benefit contemplated by the legislature to a company in the nature of a rebate and would not amount to a realistic approach of such a vital problem connected with the finances of the company.
It may be that in any particular year when distribution of dividends have been made, the paid up capital might have been reduced or increased, as the case may be.
Is that paid up capital going to be taken as the basis for working out the relative benefits or disadvantages to be enjoyed or suffered by a company? We are of the view that it is neither the intention of the legislature, nor could it be said to be a reasonable inference of the provisions thereto.
In fact, the Explanation to the Fi nance Act, 1958, which elucidates the term 'paid up capital ', gives the key to the interpretation of the word 'distribution '. 'Paid up capital ' means the paid up capital of the company on the first day of the previous year relevant for the assessment year ending on 31st March, 1959.
It is, therefore, clear that the paid up capital of the company during the assessment year cannot be said, for purposes of Paragraph D of Part II of the First Schedule to the Finance Act, 1958, to.
be the paid up capital of the year in which the profits arose and from which dividends were distributed during the assessment year.
" Before dealing with the contentions advanced, it may be appropriate to refer to the relevant provisions.
According to.
section 55 of the Indian income tax Act, 1922, in addi tion to the income tax 7 1458SCI/76 82 charged for any year there shall be charged, levied and paid for that year in respect of the total income of the previ ous year of any individual, Hindu undivided family, company, local authority, unregistered firm or other associ ation of persons, not being a registered firm, or the part ners of the firm or members of the association individually, an additional duty of income tax (in this Act referred to as super tax) at the rate or rates laid down for that year by a Central Act.
Clause (b) of section 2 of the Finance Act, 1958 (Act No. 11 of 1958) provides, inter alia, that subject to the provisions of subsections (2) and (3) with which we are not concerned, for the year beginning on the first day of April 1958. "(b) super tax shall, for the purposes of section 55 of the Indian Income tax Act, 1922 (XI of 1922) (hereinafter referred to as the Income tax Act), be charged at the rates specified in Part II of the First Schedule.
" We are concerned in the present case with Paragraph D of Part II of the First Schedule to the Finance Act, 1958.
The relevant part of the above paragraph reads as under: RATE OF SUPER TAX In the case of every other company, RATES OF SUPER TAX On the whole of the total income . . . 50%: Provided that , (i) . . . (ii) a rebate at the rate of 40 per cent on so much of the total income as consists of dividends from a subsidiary Indian company and a rebate at the rate of 30 per cent on the balance of the total income shall be allowed in the case of any company which satisfies condition (a) but not condition (b) of the preceding clause; (iii). . .
Provided further that, (i) the amount of the rebate under clause (i) or clause (ii) shall be reduced by the sum, if any, equal to the amount or the aggregate of the amounts, as the case may be, computed as hereunder: . . . . . (c) in addition, in the case of a company referred to in clause (ii) of the preceding proviso which has distributed to its shareholders during the previous year dividends in excess of six per cent of its paid up capital, not being dividends payable at a fixed rate 83 (A) in the case of a company which is not such as is referred to in sub section (9) of section 23A of the Income tax Act : on that part of the said dividends which exceeds 6 per cent, but does not exceed 10 per cent of the paid up capital; at the rate of 10% on that part of the said dividends which exceeds 10 per cent of the paid up capital; at the rate of 20% Explanation.
For the purpose of this paragraph (i) . . . . (ii) . . . . (iii) where any portion of the profits and gains of the company is not included in its total income by reason of such portion being exempt from tax under any provision of the Income tax Act, the 'paid up capital ' of the company, the amount distributed as dividends (not being dividends payable at a fixed rate), the amount representing the face value of any bonus shares and the amount of any bonus issued to the shareholders shall each be deemed to be such proportion thereof as the total income of the company for the previous year bears to its total profits and gains for that year other than capital receipts, reduced by such allowances as may be admissible under the Income tax Act which have not been taken into account by the company in its profit and loss account for that year.
" In appeal before us Mr. Desai on behalf of the appel lant has urged that dividend having been distributed during the accounting year relevant to the assessment year in question, it is the profits and gains of that year alone which should be taken into consideration for calculating the rebate in the levy of super tax.
The fact that such divi dend was distributed out of the profits earned in the years prior to that was, according to.
the learned counsel, irrelevant.
Particular stress in this context has been laid upon the language of clause (iii) of the Explanation con tained in Paragraph D of Part II of the First Schedule to the Finance Act,1958.
As against that, Mr. Ramachandran who has argued the case amicus curiae has canvassed for the correctness of the view taken by the High Court.
We have set out above the relevant part of Paragraph D of Part II of the First Schedule to the Finance Act, 1958.
The language in which the above paragraph is couched is so complex and is hedged in with so many exceptions and provi sos that it can hardly be regarded as a model of clari ty in legislative draftsmanship.
Paragraph D initially prescribes the rate of super tax at 50 per cent on the total income of the company.
The first proviso then makes 84 provision for rebate in the assessment of the super tax.
The rebate for a company like the respondent with no income in the form of dividend from a subsidiary company is to be at the rate of 30 per cent.
The second proviso carves out reduction in the rebate.
Clause (c) of that proviso sets out the formula for calculating that reduction at a sliding scale in case the amount of distributed dividend exceeds 6 per cent of the paid up capital.
There then follows a third proviso but we are not concerned with that.
At the end comes the Explanation consisting of three clauses.
For the purpose of the present case, the relevant clause is (iii).
The said clause makes provision in cases which fall within its ambit for a further reduction in the reduction mentioned above.
To put it in other words, the paragraph seeks to prescribe the rate of super tax.
It then proceeds to grant some relief to the tax payer in the levy of .
super tax.
It thereafter makes a cut in that relief.
Finally, it prescribes a cut in that cut.
The intelligence of even those with legal background gets staggered in this continu ous process of carving exceptions to exceptions.
It seems more like a conundrum, baffling the mind and requiring special acumen to unravel its mystique.
One can only wonder as to how the ordinary tax payers, most of whom are laymen, can keep abreast of such laws.
Yet the maxim is that every one is presumed to know the law.
The one redeeming feature is that the above pattern was given up after 1959.
From 1960 to 1964 there was another pattern.
Since 1965 the charge of super tax has been discontinued and the rates of income tax have been so increased as to absorb fully the former levy of super tax.
The fate of these appeals, as would appear from the above, depends upon the wording of clause (iii) of the Explanation.
The said clause contemplates, inter alia, that in calculating the amount deemed to have been distributed as dividends, certain proportion of the amount actually dis tributed has to be taken into.
account.
The said clause, shorn of the portions with which we are not concerned, reads as under: Where any portion of the profits and gains of the company is not included in its total income by reason of such portion being exempt from tax under any provision of the Income tax Act, . the amount distributed as dividends . . shall. be deemed to be such proportion thereof as the total income of the company for the previous year bears to its total profits and gains for that year other than capital receipts, reduced by such allowances as may be admissible under the Income tax Act which have not been taken into account by the company in its profit and loss account for that year.
The above clause provides a formula which has to be applied for determining the amount of dividends which shall be deemed to have been distributed in considering the quantum of rebate for assessing the super tax payable by a company.
The occasion for applying this formula is indi cated by the opening lines of the clause and arises when any portion of the profits and gains of the company 85 is not included in its total income by reason of such por tion being exempt from tax under the provisions of the Income tax Act.
Once such an occasion arises, we have to apply the formula contained in the tatter part of the clause.
According to that formula, the amount distributed as dividends shall be deemed to be such proportion thereof as the total income of the previous year bears to its total profits and gains for that year other than capital re ceipts, reduced by certain allowances with which we are not concerned.
The words "for the previous year" and "for that year" indicate that in finding for the purpose of rebate the amount of dividends which shall be deemed to have been distributed, we have to look to the figure of total income and the amount of profits and gains other than capital receipts of the company reduced by certain allow ances in the previous year alone and not earlier years.
Clause (iii) introduces a fiction with regard to the amount of dividends which shall be deemed to have been distributed.
Such a fiction can operate only within the limits prescribed by the language of the statute creating that fiction.
The language used in clause (iii) points to the conclusion that the taxing authorities have to take into account the company 's total income and the profits and gains other than capital receipts reduced by certain allowances only in the previous year, i.e., the year in which the dividend was distributed.
The fact that those profits and gains accrued in years prior to the previous year and in cluded portions which were exempt from tax under the provi sions of the Income tax Act would not be of much relevance as the language of the clause requires the taxing authori ties to look to the position of profits and gains in the previous year alone.
We would, therefore, modify the answer given by the High Court to question No. (1) and answer the aforesaid question in the negative.
The correct answer, in our opinion, should be that for computing the reduction in rebate under Paragraph D of Part II of the First Schedule to the Finance Act, 1958 the position of profits and gains as it existed in the previous year should be taken into account and not in the years prior to that.
No arguments have been addressed before us on the answer to question No. (2).
We accordingly accept the appeals, set aside the judg ment of the High Court and answer question No. (1) in the negative as indicated above.
The parties in the circum stances shall bear their own costs in this Court and in the High Court.
M.R. Appeals allowed.

summary/full:
The Income tax officer took into account the respond ent 's entire dividend income of the year ending December 30, 1957, while calculating the super tax payable by it for the assessment year 1958 59.
In appeal against the computation the respondent contended before the Appellate Assistant Commissioner that the dividend income included profits earned during the previous years, and that rebate should be reduced only with reference to the proportionate part of the dividend declared during 1957 which had come out of the other income assessed to income tax.
and super tax in the assessment year 1957 58.
The respondent 's contention was accepted in principle.
The Department 's appeal was dis missed by the Appellate Tribunal.
The matter was then referred to the High Court under section 66(1) of the Indian Income Tax Act, 1922, and decided in favour of the assessee.
Allowing the appeals the Court, HELD: For computing the reduction in rebate under para graph D of Part II of the First Schedule to the Finance Act, 1958, the position of profits and gains as it existed in the previous year should be taken into account and not in the years prior to that Clause (iii) introduces a fiction with regard to the amount of dividends which shall be deemed to have been distributed.
The taxing authorities have to take into account the company 's total income and the profits and gains other than capital receipts reduced by certain allow ances only in the previous year, i.e., the year in which the dividend was distributed.
The fact that those profits and gains accrued in years prior to the previous year and in cluded ' portions which were exempt from tax under the provi sions of the Income tax Act would not be of much relevance.
[85 A D]