judgement:
ns Nos. 182 of 1969 and 42 to 45 of 1968.
Petition under article 32 of the Constitution of India for enforcement of the fundamental rights.
D. M. Parulekar and A. G. Ratnaparkhi, for the petitioners (in W.P. No. 182 of 1969).
section section Shukla, for the petitioners (in W.P. No. 42 to 45 of 1968.
section T. Desai, G. L. Sanghi, B. D. Sharma for section P. Nayar, for respondents Nos. 1 to 3 (in W.P. No. 182 of 1969) and the respondents (in W.P. Nos.
42 to 45 of 1968).
The Judgment of the Court was delivered by Ray, J.
These petitioners raise two principal questions.
First, whether the State of Maharashtra (hereinafter referred to as the State) is competent to enact the Maharashtra Industrial Development Act, + 1961 (hereinafter referred to as the Act): secondly, whether there is procedural discrimination between the Maharashtra Industrial Development Act, 1961 and the Land Acquisition Act, 1894, 721 The contentions of the petitioners are that.
the Act is for the incorporation, regulation and winding up of the Maharashtra Development Corporation (hereinafter referred to as the Corporation) and that the Corporation is a trading one and therefore the impugned legislation falls within Entry 43 of List I of the Seventh Schedule of the Constitution.
On behalf of the State it is said on the other hand that the Act is for the growth and development of industries in the State of Maharashtra and for acquisition of land in that behalf and the Corporation is established for carrying out the purposes of the Act, and, therefore,the legislation is valid.
The true character,scope and intent of the Act is to be ascertained with reference to the purposes and the provisions of the Act.
The Act is one to make a special provision for securing the orderly establishment in industrial areas and industrial estates of industries in the State of Maharashtra, and to assist generally in the Organisation thereof, and for that purpose to establish an Industrial Development Corporation, and for purposes con nected with the matters aforesaid.
The Corporation is established for the purpose of securing and assisting the rapid and orderly establishment and organisation of industries in industrial areas and industrial estates in the State of Maharashtra.
The Corporation consists of 8 members, two of whom are nominated by the.
State Government of whom one shall be the Financial Adviser to the Corporation, one member nominated by the State Electricity Board, one member nominated by the Housing Board and three members nominated by the State Government, from amongst person appearing to Government to be qualified as having had experience of , and having shown capacity in, industry or trade or finance or who are in the opinion of the Government capable of representing the interest of persons engaged or employed therein, and the Chief Executive Officer of the Corporation, who shall be the Secretary of the Corporation.
The functions of the Corporation shall, be generally to promote and assist in the rapid and orderly establishment, growth and development of industries in the State of Maharashtra and to establish and manage industrial estates at places selected by the State Government, develop industrial areas selected by the State Government for the purpose and make them available for undertakings to estab lish themselves, assist financially by loans industries to move their factories into such estates or areas, and to undertake schemes or works, either jointly with other corporate bodies or institutions, or 69Sup.
CI(P)71 2 722 with Government or local authorities, or on agency basis, in furtherance of the purposes for which the Corporation is established and all matters connected therewith.
An industrial area under the Act means any area declared to be an industrial area by the State Government by notification in the Official Gazette which is to be developed and where industries are to be accommodated.
An industrial estate under the Act means any site selected by the State Government, where the Corporation builds factories and other buildings and makes them available for any site selected by the State Government, where the Corporation means the carrying out of building, engineering, quarrying or other operations in, on, over or under land, or the making of any material change in any building or land, and includes redevelopment, but does not include mining operations.
Amenity under the Act includes road, supply of water or electricity, street lighting, drainage, sewerage, conservancy and such other conveniences as the State Government may by notification in the Official Gazette specify to be an amenity for the purposes of the Act.
We have referred to these expressions, industrial area, industrial 'estate, development and amenity in order to appreciate the general powers of the Corporation to discharge the functions of the Corporation in regard to the establishment, growth and development of industries, in the State.
These powers are to acquire and hold property, movable and, immoveable for the performance of any of its activities, and to lease, sell, "change or otherwise trans fer any property held by the Corporation on such conditions as may be deemed proper by the Corporation and also to purchase by agreement or to take on lease or under any form of tenancy any land, to erect such buildings and to "execute such other works as may be necessary for the purpose of carrying out its duties and functions, to provide or cause to be provided amenities and common facilities in industrial estates and industrial areas and construct and maintain or cause to be maintained works and buildings therefore, to make available buildings on hire or sale to industrialists or persons intending to start industrial undertakings, to construct buildings for the housing of the employees of such industries, to allot factory sheds or such buildings or parts of buildings, including residential tenements to suitable persons in the industrial estates established or developed by the Corporation, and to, do such other things and perform such acts as it may think necessary or expedient for the proper conduct of its functions, and the carrying into effect the purposes of this Act.
Broadly stated 'the functions and powers of the Corporation are to develop industrial areas and industrial estates by providing.
amenities of Toad, supply of water or electricity, street,.
lighting, 723 drainage, sewerage, conservancy and other conveniences, secondly to construct works and buildings, factory sheds and thirdly, to make available buildings on hire or sale to industrialists or persons intending to start industrial undertakings and to allot factory sheds, buildings, residential tenements to suitable persons in industrial estates established or developed by the Corporation and to lease, sell, exchange or otherwise transfer any property held by the Corporation on such conditions as may be deemed proper by the Corporation.
The development of industrial areas and industrial estates is intended to serve two objects.
In the first place, there is to be an orderly establishment and growth of industries in the Bombay Poona sector.
The second object is to secure dispersal of industries from the congested areas of the Bombay Poona sector to the under developed parts of the St ate.
The industrial areas are broadly classified into two categories, namely, first, those meant for engineering and other industries which are not obnoxious, and, secondly, those meant for chemical industries.
The establishment and growth of industries in the State is inextricably bound up with availability of land.
Available land in limited.
Such limited supply leads to speculation in land.
Power is therefore required for compulsory acquisition of land to achieve the purposes of the Act.
At the same time, land owners are not to be deprived of the legitimate benefit of reasonable increase in land values in a developing economy.
Development of chemical industries requires long stretches of pipelines to be laid for moving gas and other liquid , chemical products.
The growth of industries in the State by establishment of industrial areas and industrial estates also means laying pipelines for carrying gas, water, electricity and constructing sewerage and drains.
These amenities are essential.
The absence of amenities is envisaged and answered in the Act by empowering the Corporation to provide these essential amenities, facilities and conveniences.
The principal functions of the Corporation in regard to the establishment, growth and development of industries in the are first to establish and manage industrial, estates at selected places and secondly to develop industrial areas selected by the State Government.
When industrial areas are selected the necessity of acquisition of land in those areas is apparent.
The 'Act, therefore, contemplates that the, ate Government may acquire land by publishing a notice specifying the particular purpose for which such land is required.
Before: the publication of the notice the owner of the land is given an opportunity, to show cause as to 724 why the land should not be acquired.
The State after considering the cause shown by the owner the State Government may pass such orders as it deems fit.
When a notice is published for acquisition of land, the land, shall, on and from the date of such publication, vest absolutely in the State, Government free from all en cumbrances.
Where the land has be en acquired for the Corporation or any local authority, the State Government shall, after it has taken possession of the land, transfer the land to the Corporation or that local authority, for the purposes for which the land has been acquired subject to such terms and conditions which the State Government may deem fit to impose.
We have already noticed that for the purpose of the Act, namely, the establishment and development of industries in the State the Corporation will establish industrial estates and develop industrial areas.
Apart from establishing industrial estates and developing industrial areas the Corporation may dispose of any land acquired by the State Government and transferred to the Corporation without undertaking or carrying out any development thereof or transfer such land after undertaking or carrying out any development as it thinks fit.
These powers of the Corporation with respect to the disposal of land are to be exercised so far as practicable, that where the Corporation proposes to dispose of by sale any such land without any development having been undertaken or carried ,out thereon, the Corporation shall offer the land in the first instance to the persons from whom it was acquired if they desire to purchase it subject to such requirements as to its development and use as the Corporation may think fit to impose.
Against, the persons who are residing or carrying on business or other activities on any such land shall, if they desire to obtain accommodation on land belonging to the Corporation and are willing to comply with any requirements of the Corporation as to its development and use, have an opportunity to obtain thereon accommodation suitable to their reasonable requirements on terms settled with due regard to the price at which any such land has been.
acquired 'from them.
The other provisions in the Act are that the State Government may upon such conditions as may be agreed between the State 'Government and the Corporation, place at the disposal of the ,Corporation any land vested in the, State Government.
After any such land has been developed by, or under the control and super vision of, the Corporation, it shall be dealt with by the Corporation in accordance with the regulations made, and directions given by the State Government in this behalf.
Further, if Any land placed at the disposal of the Corporation is required at any time thereafter by the State Government, the Corporation shall replace 725 it at the disposal of the State Government upon such terms and conditions as may be mutually agreed upon.
There are two other important provisions in the Act.
In the first place, the State Government may issue to the Corporation such general or special directions as to policy as it may think necessary or expedient for the purpose of carrying out the purposes of the Act,_ and the Corporation shall be bound to follow and act upon such directions.
These directions will be in the field of ' establishment and management of industrial estates and development of industrial areas and carrying out the other powers of the Corporation in regard to the provision of amenities and common facilities, and assisting industrialists or industrial undertakings in.
obtaining buildings or factory sheds or residential tenements or land for development of industries.
The second important provision is that when the State Government is satisfied that the purposes for which the Corporation is established under the Act have been substantially achieved so as to render the continued existence of the Corporation in the opinion of the State Government unnecessary that Government may by notification in the Official Gazette declare that the Corporation shall be dissolved with effect , from such date as may be specified in the notification and the Corporation shall be deemed to be dissolved 'accordingly.
Upon such dissolution, all properties, funds and dues which are vested ' in or realisable by the Corporation shall vest in or be realised by the State Government and all liabilities enforceable against the Corporation shall be enforceable against the State Government.
It is in the background of the purposes of the Act and powers and functions of the Corporation that the real and true character of the legislation will be determined.
That is the doctrine of finding out the pith and substance of an Act.
In deciding the pith and substance of the legislation, the true test is not to find out whether the Act has encroached upon or invaded any forbidden field but what the pith and substance of the Act is.
It is true intent of the Act which will determine the validity of the Act.
Industries come within Entry 24 of the State List subject to the provision of Entry 7 and Entry 52 of the Union List of the Constitution.
Entry 7 of the Union List relates to industries declared by Parliament by law to necessary for the purpose of defence or for the prosecution of war.
Entry 52 of the Union List relates to industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest.
The establishment, growth and development of industries in the State of Maharashtra do not fall within Entry 7 and Entry 52 of the Union List.
Establishment, growth and development of industries in the State is within the 726 State List of industries.
Furthermore, to effectuate the purposes of the development of industries in the State it is necessary make land available.
Such land can be made available by acquisition or requisition.
The Act in the present case deals with acquisition of land by the State and on such acquisitions the State may transfer the land to the Corporation which again may develop it itself and establish industrial estates or may develop industrial areas.
Acqui sition or requisition of land falls under Entry 42 of the Concurrent List.
In order to achieve growth of industries it is necessary not ,only to acquire land but also to implement the purposes of the Act.
The Corporation is therefore established for carrying out the purposes of the Act. 'De pith and substance of the Act is establishment, growth and Organisation of industries, acquisition of land in that behalf and carrying out the purposes of the Act by setting up the Corporation as one of the limbs or agencies of the Government.
The powers and functions of the Corporation show in ' no ,uncertain terms that these are all in aid of the principal and predominant purpose of establishment, growth and establishment of ,industries.
The Corporation is established for that purpose.
When the Government is satisfied that the Corporation has substantially achieved the purpose for which the Corporation is established, the Corporation will be dissolved because the raison detre is gone.
We, therefore, hold that the Act is a valid piece of legislation.
The petitioners contended that the Corporation was a trading one.
The reasons given were that the Corporation could sell property, namely, transfer land; that the Corporation had borrowing powers , and that the Corporation was entitled to moneys by way of rents and profits.
Reliance was placed on the report of the Corporation and in particular on the income and expenditure of the Corporation to show that it was making profits.
These features of transfer of land, or borrowing of moneys or receipt of rents and profits will by themselves neither be the indicia nor the decisive attributes of the trading character of the Corporation.
Ordinarily, a Corporation is established by shareholders with their capital.
The shareholders have their Directors for the regulation and management of the Corporation.
Such a Corporation set up by the shareholders, carries on business and is intended for making profits.
When profits are earned by such a Corporation they are distributed to shareholders by way of dividends or kept in reserve funds.
In the present case, these attributes of a trading Corporation are absent.
The Corporation is established by the Art for carrying out the purposes of the Act.
The purposes of the Act are development of industries in the State.
The Corporation consists of nominees of the State Government, State Electricity Board and the Housing Board.
The functions and powers of the Corporation indicate 'that the Corporation is acting as I a wing of the State Government 727 in establishing industrial estates and developing industrial areas, acquiring property for those purposes, constructing buildings, allotting buildings, factory sheds to industrialists or industrial undertakings.
It is obvious that the Corporation will receive moneys for disposal of land, buildings and other properties and also that the Corporation would receive rents and profits in appropriate ,cases.
Receipts of these moneys arise not out of any business or trade but out of the sole purpose of establishment, growth and development of industries.
The Corporation has to provide amenities and facilities in industrial estates and industrial areas.
Amenities of road, electricity, sewerage and other facilities in industrial estates and industrial areas are within the programme of work of the Corporation.
The fund of the Corporation consists of moneys received from the State Government, all fees, costs and charges received by the Corporation, all moneys received by the Corporation from the disposal of lands, buildings and other properties and all moneys received by the Corporation by way of rents and profits or in any other manner The Corporation shall have the authority to spend such sums out of the general funds of the Corporation or from reserve and other funds.
The Corporation is to make provision for reserve and other specially denominated funds as the State Government may direct.
The Corporation accepts deposits from persons, authorities or institutions to whom allotment or sale of land, buildings, or sheds is made or is likely to be made in furtherance of the object of the Act.
A budget is prepared showing the estimated receipts and expenditure.
The accounts of the Corporation are audited by an auditor appointed by the State Government.
These provisions in regard to the finance of the Corporation indicate the real role of the Corporation, viz., the agency of the Government in carrying out the purpose and object of the Act which is the development of industries.
If in the ultimate analysis there is excess of income over expenditure that will not establish the trading character of the Corporation.
There are various departments of the Government which may have excess of income over expenditure.
The Corporation is not a Government company within the meaning of section 617 of the nor can the ' be said to apply to the Corporation because under the provisions contained in section 616 of the that Act will apply to a company governed by any special Act except in so far as the provisions of the are inconsistent with the provisions of such special Act.
The provisions of the Act in the present case in regard to incorporation, functions, powers and dissolution of the Corporation show that the purposes 728 and objects of the Act and the functions and powers of the Corporation are like the warf and weft of the fabric of development of industries by the State.
There are two provisions of the Act which are not to be found in any trading Corporation.
In the first place, the sums payable by any person to the Corporation are recoverable by it under this Act as an arrear of land revenue on the application of the, Corporation.
Secondly, on dissolution of the Corporation the assets vest in and the liabilities become enforceable against the State Government.
The underlying concept of a trading Corporation is buying and selling.
There is no aspect of buying or selling by the Corporation in the, present case.
The Corporation carries out the purposes of the Act, namely, development of industries in the State.
The construction of buildings, the establishment of industries by ' letting buildings on hire or sale, the acquisition and transfer of land in relation to establishment of industrial estates or development of industrial areas and of setting up of industries cannot be said to be dealing in land or buildings for the obvious reason that the State is carrying out the objects of the Act with the Corporation as an agent insetting up industries in the State.
The Act aims at building an industrial town and the Corporation carries out the objects of the Act.
The hard core of trading Corporation is its commercial character.
Commerce connotes transactions of purchase and sale of commodities, dealing in goods.
The forms 'of business transactions may be varied but the real character is buying and selling.
The true character of the Corporation in the present case is to act as an architectural agent of the development and growth of indus trial towns by establishing and developing industrial estates and industrial areas.
We are of opinion that the Corporation is not a trading one.
Counsel on behalf of the petitioners contended that there was procedural discrimination between the Land Acquisition Act and the Act in the present case.
It was said that there was a special procedure designed by the Land Acquisition Act for acquisition of land for the companies whereas in the ' present case the State was acquiring land for companies without adopting the procedure of , the Land Acquisition Act.
It is to be remembered that the Act in the present case is a special one having the specific and special pur pose of growth, development and Organisation of industries in the State of Maharashtra.
The Act has its own procedure and there is no provision in the Act for acquisition of land for a company as in the case of Land Acquisition Act.
In the present case, acquisition under the Act is for the purpose of development of industrial 729 estates or industrial areas by the Corporation or any other purpose in furtherance of the objects of the Act.
The policy underlying, the Act is not acquisition of land for any company but for the one.
and only purpose of development, Organisation and growth of industrial estates and industrial areas.
The Act is designed to have a planned industrial city as opposed to haphazard growth of industrial areas in all parts of the State.
The Act is intended to prevent ,.growth of industries in the developed parts of the State.
Industries are therefore to be set up in the developing or, new parts of the State where new industrial towns will be brought into existence.
The object of, the Act is to carve out planned areas for industries.
On one side there Will be engineering industries and on the other there will be chemical industries.
There will be localisation of industries with the result that the residents and dwellers of towns and cities will not suffer either from the polluted air or obnoxious.
chemicals of industries or the dense growth of industries and industrial population, within and near about the residential areas.
The Land Acquisition Act is a general Act and that is why there is specific provision for acquisition of land by the, State for public purpose and acquisition of land by the State for companies.
The present Act on the other hand is designed the sole purpose of development of industrial areas and industrial estates and growth and development of industries within the State.
Industrial undertakings or persons who are engaged in industries all become entitled to the ' facilities on such industrial growth.
Under the Land Acquisition Act acquisition is at the instance of and for the benefit of a company whereas under the present Act acquisition is solely by the State for public purposes.
The two acts are dissimilar in situations and circumstances.
The petitioners contended that the provisions as to compensation were a restriction on the judicial power of the Collector.
Section 33 of the Act deals with compensation.
The amount of compensation under the Act can be determined by agreement between the State Government and the person to be compensated.
Where on the other hand no such agreement can be reached, the State Government shall refer the case to the Collector.
That is subsection (3) of section 33 of the Act.
The proviso to that sub section is that no compensation exceeding such amount as the State Government may by general orders specify to b paid for such acquisition shall be determined by the Collector without the previous approval of the State Government or such officer as the State Government may appoint in that behalf.
This proviso was construed on behalf of the petitioners to be a fetter on the judicial powers of the Collector to determine compensation.
Subsection (5) of section 33 of ',.he
Act states that in determining the amount of compensation the Collector shall be guided by the pro 730 visions contained in sections 23 and 24 and other relevant provisions of the Land Acquisition Act These provisions indicate that if the Collector will determine an amount higher than what the State Government may by general orders specify, the approval of the State Government will be necessary.
There is no ceiling fixed by the Government.
Finally, there is an appeal to the Court from the decision of the Collector.
The decision of the Court will finally determine the amount of compensation.
We are of opinion that there is no restriction on the, powers of the Collector in the matter of determination of compensation, although the approval of Government may be necessary in the Government interest.
All the contentions advanced by the petitioners fail.
The petitions 'are dismissed with costs.
G.C. Petitions dismissed.

summary/full:
In a petition under article 32 of the Constitution of India the petitioners challenged the validity of the Maharashtra Industrial Development Act, 1961.
In support of the petition it was contended : (i) that the Maharashtra legislature was incompetent to enact the Act because the Act was for the incorporation, regulation and winding up of the Maharashtra Development Corporation which was a trading corporation; accordingly the impugned legislation fell within Entry 43 of List I (.Union List) or the Seventh Schedule of the Constitution; (ii) that there was a special procedure designed by the land Acquisition Act for acquisition of land for the companies whereas in the present case under the provisions of the impugned Act the State was acquiring land for companies without adopting the procedure of the Land Acquisition Act and thus there was procedural discrimination; (iii) that the proviso to section 33 of the impugned Act providing that no compensation exceeding such amount as the State Government may by general order specify to be paid for acquisition shall be determined by the Collector without the previous approval of the State Government or its nominee, was restrictive of the judicial power of the Collector.
HELD : (i) It is the true intent of the Act i.e. its pith and substance which will determine the validity of the Act.
Industries come within Entry 24 of the State List subject to the provision of Entry 7 and Entry 52 of the Union List of the Constitution.
Entry 7 of the Union list relates to industries declared by Parliament by law to be necessary for the purpose of defence or for the prosecution of war.
Entry 52 of the Union List relates industries the control of which by the Union is declared by Parliament by law to be expedient in the public interest.
The establishment, growth and development of industries in the State of Maharashtra does not fall within Entry 7 and Entry, 52 of the Union List.
Establishment growth and development of industries in the State is within the State List of industries.
The, pith and substance of the Act is establishment growth and development of industries, and acquisition of land in that behalf carries out the purposes of the Act by setting up the Corporation as one of the limbs or agencies of the Government. 'Me powers and functions of the Corporation show in no certain terms that these are all in aid of the principal and predominant purpose of establishment and growth of industries.
When the Government is satisfied that the Corporation has substantially achieved the purposes for which the Corporation is established, 720 the Corporation will be dissolved because the raison d 'etre is gone.
It must, therefore, be held that the Act is a valid piece of legislation.
[725 F 726 D] The contention that the Corporation was a trading one, or that it Was a Government company within the meaning of section 617 of the could not be accepted.
[Reason dissussed] The true character of the Corporation in the present case is to act as an architectural agent of the development and growth of industrial towns by establishing and developing industrial estates and industrial areas.
[727 B 728 F] (ii) The contention that there was procedural discrimination is between the present Act and the Land Acquisition Act could not be accepted.
The Maharashtra Industrial Development Act is a special one having the specific and special purpose of growth, development and Organisation ,of industries.
That Act has its own procedure.
Under the Land Acquisition Act acquisition is at the instance of and for the benefit of a company whereas under the present Act acquisition is solely by the State for public purposes. 'Me two acts arc dissimilar in situation and circumstances.
[728 H 729 E] (iii) The proviso to section 33 no doubt provides that where the amount of compensation determined by the Collector is higher than what the State Government may by general order specify the approval of the State Government is necessary, But sub section (5) of section 33 states that in determining the compensation the Collector shall be guided by the provisions contained in sections 23 and 24 and other relevant provisions of the Land Acquitition Act.
There is no ceiling fixed by the Government.
Further there is an appeal to the Court from the decision of the Collector.
The decision of the Court will finally determine the amount of compensation.
There is thus no restriction on the powers of the Collector in the matter of determination of compensation, although the approval of Government may be necessary in the Government interest.
[729 F 730 C]


judgement:
iminal Appeal No. 39 of 1954.
Appeal by Special Leave from the Judgment and Order dated the 5th May, 1953, of the Lucknow Bench of Allahabad High Court in Criminal Revision No. 200 of 1952, arising out of the Judgment and Order, dated the 17th May, 1952, of the Special Magistrate, AntiCorruption for Uttar Pradesh at Lucknow in Case No. 40 of 1951.
Hardyal Hardy (K. L. Arora and section D. Sekhri, with him) for the appellant.
123 966 C. P. Lal for the respondent.
October 29.
The Judgment of the Court was delivered by JAGANNADHADAS J.
The appellant in this case was a clerk in the office of the Running Shed Foreman of the East Indian Railway at Kanpur.
He was convicted under section 161 of the Indian Penal Code and sentenced to rigorous imprisonment for one year and nine months, and also to a fine of Rs. 200.
The conviction and sentence have been upheld by the Sessions Judge on appeal and by the High Court in revision.
The charge against the appellant was that on the 6th of January, 1951, he accepted illegal gratification of Rs. 150 from the complainant, Gurphekan a retrenched cleaner in the Locomotive Department of the Railway, examined as P.W. 2 as a motive for getting him re employed in the Railway (by arranging with some superior officer).
There was an alternative charge under section 162 of the Indian Penal Code but it is no longer necessary to notice it since the conviction is for the main charge under section 161 of the Indian Penal Code.
The Special Police Establishment having received information of the demand of the bribe arranged for a trap and caught the appellant just at the time when he received the sum of Rs. 150 from the complainant and seized the amount.
The appellant admitted the receipt of the money but denied that he demanded or accepted it as a bribe.
His case was that the complainant had previously borrowed money from him and that this money was paid in discharge of the debt.
The Courts below have rejected the defence and accepted the prosecution case and conviction followed thereupon.
Learned counsel for the appellant has tried to persuade us, with reference to the evidence in the case, that the view taken by the Courts below is unsustainable.
It is unnecessary to notice this argument in any detail because this is an appeal on special leave and nothing so seriously wrong with the findings of fact have been shown, which call for interference by this 967 Court.
It is sufficient to notice the main legal arguments that have been advanced.
It is pointed out that the appellant though employed in the Railway was not himself a person who was in a position to give a job to the complainant nor is it shown that he had any intimacy or influence with any particular official who could give a job.
It is urged therefore that the offence, if any, committed by the appellant could only be one of cheating and not the receiving of a bribe.
This argument is without any substance.
By the terms of section 161 of the Indian Penal Code a person who is a public servant and accepts illegal gratification as a motive for rendering service, with any public servant as such, is guilty of the offence thereunder.
To constitute an offence under this section it is enough if the public servant who receives the money takes it by holding out that he will render assistance to the giver "with any other public servant" and the giver gives the money under that belief.
It may be that the receiver of the money is in fact not in a position to render such assistance and is even aware of it.
He may not even have intended to do what he holds himself out as capable of doing.
He may accordingly be guilty of cheating.
None the less he is guilty of the offence under section 161 of the Indian Penal Code.
This is clear from the fourth explanation to section 161 of the Indian Penal Code which is as follows : "A motive or reward for doing. ' A person who receives a gratification as a motive for doing what he does not intend to do (or as a reward for doing what he has not done) comes within these words.
" Illustration (c) to section 161 of the Indian Penal Code which runs as follows also elucidates this: A, a public servant, induces Z erroneously to believe that A 's influence with the Government has obtained a title for Z and thus induces Z to give A money as a reward for, this service.
A has committed the offence defined in this section.
" Thus where a public servant who receives illegal gratification as a motive for doing or procuring an 968 official act whether or not he is capable of doing it or whether or not he intends to do it he is quite clearly within the ambit of section 161 of the Indian Penal Code.
The next contention that has been raised is that the charge does not specify the particular public servant who was intended to be influenced by the appellant in consideration of his receiving the money.
It is urged that section 161 of the Indian Penal Code would not apply to such a case.
It is suggested that the phrase "with any public servant" in section 161 of the Indian Penal Code must relate to a specified public servant.
In the present case the evidence of the complainant and the finding of the High Court is that the appellant "purported to attempt rendering of a service to the complainant with another public servant, viz., the Head clerk at Allahabad." But even apart from such a finding there is nothing in the terms of section 161 of the Indian Penal Code requiring that the public servant contemplated therein must be a specified public servant.
The material portion of the section is as follows: " for rendering or attempting to render any service or disservice to any person, with the Central or Provincial Government or Legislature, or with any public ,servant as such.
" The phrase "Central or any Provincial Government or Legislature" does not contemplate any specified individual or individuals.
There is no reason why the phrase "any public servant" used in the same context should be taken to mean any specified public servant.
The gist of the offence under section 161 of the Indian Penal Code (in so far as it is relevant here) is the receipt by a public servant of illegal gratification as a motive or reward for the abuse of official position or function, by the receiver himself or by some other public servant at his instance.
There is, therefore, no substance in this argument.
The only serious argument that has been advanced and which requires a little closer examination is that there was no valid sanction for the prosecution.
There is no doubt that this is a case to which the Prevention 969 of Corruption Act, 1947 would apply and that by virtue of section 6(c) thereof the prosecution requires the sanction of the authority "competent to remove the appellant from his office.
" It is urged that this requirement was not satisfied on the facts of this case.
It has been pointed out that the appellant is a civil servant of the, Indian Union and that by virtue of article 311 (1) of the Constitution he cannot be removed by an authority subordinate to that by which he was appointed.
This appears also to be the position under rule 1705(c) of the Indian Railway Establishment Code, Volume 1 (1951 Edition) which is as follows: "No railway servant shall be removed (or dismissed) by an authority lower than that by which he was appointed to the post held by him substantively".
The sanction for the prosecution in this case was granted under exhibit 10 by one Shri L. R. Gosain, Superintendent Power, East Indian Railway, Allahabad.
The order of appointment of the appellant, Ex F, shows the Divisional Personnel Officer, East Indian Railways, Allahabad, as the appointing authority.
It may be mentioned that in the appeal before the Sessions Judge a contention was raised that the appointment of the appellant was in fact made by the Divisional Superintendent and that exhibit F was only signed by the Divisional Personnel Officer on his behalf The Sessions Judge found against this contention and the same has not been challenged before us.
What, however, is urged is that the Superintendent Power who gave the sanction for prosecution is not shown to be an officer not lower in rank than the Divisional Personnel Officer who made the appointment.
The question as to the validity of the sanction has been raised both before the Sessions Judge as well as before the High Court.
The High Court in considering the question appears to have merely satisfied itself that under the Railway Regulations, Shri L. R. Gosain, Superintendent Power, was a person competent to remove the appellant from his office within the terms of section 6 of the Prevention of Corruption Act.
The High Court does not appear to have considered the further question whether or not the requirements of article 31 1 (1) of the Constitution and 970 rule 1705(c) of the Railway Establishment Code have been satisfied with reference to the inter se position as between the authority who appointed the appellant and the authority who sanctioned the prosecution.
The learned Sessions Judge, however, has recorded a categorical finding that the Divisional Personnel Officer is in the same grade as the Superintendent Power.
His finding is in the following terms: "I, therefore, hold that the accused could be and was actually appointed by the Divisional Personnel Officer who is in the, same grade as the Superintendent Power.
It cannot therefore be said that the Superintendent Power Mr. L. R. Gosain was not authorised to remove the accused from service by virtue of rule 1705 and this argument advanced against the validity of sanction, exhibit 10, falls to the ground".
Learned counsel for the appellant urged that the requirement both of the Constitution and of the rule of the Railway Code, contemplates that the authority competent to remove must be either the very authority who appointed or any other authority directly superior to the appointing authority in the same department, We do not think that this contention is tenable.
What the Constitution requires is that a person should not be removed by an authority subordinate to the one by whom he was appointed and what the rule in the Railway Code prescribes is substantially the same, viz., "the authority competent to remove should not be lower than the one who made the appointment".
These provisions cannot be read as implying that the removal must be by the very same authority who made the appointment or by his direct superior.
It appears to us to be enough that the removing authority is of the same rank or grade.
In the present case it does not appear into which particular branch of the department the appellant was taken, in the first instance in 1944 under exhibit F.
But it is in the evidence of P.W. 4, the Head clerk of the office of the Divisional Superintendent, that the office of the Running Shed Foreman in which the appellant was a clerk in 1951 was directly under the Superintendent Power.
He was obviously the most appropriate officer to grant the sanction, 971 provided he was of a rank not less than the Divisional Personnel Officer.
Counsel for the appellant urges that the evidence does not support the finding of the learned Sessions Judge that Shri L. R. Gosain, Superintendent Power, was of the same grade as the Divisional Personnel Officer who made the appointment.
P. W. 4 in his evidence, however, quite clearly speaks to this as follows: "Divisional Superintendent is the head of the entire administrative division.
The Divisional Personnel Officer is under him.
The Superintendent Power and Superintendent Transport are also under him and also such other officers of the same rank. . .
Divisional Personnel Officer and the various Superintendents are officers of the same rank.
They are not subordinate to each other".
It has been commented that this should have been substantiated by the official records and not by oral evidence.
That no doubt would have been more satisfactory.
The learned Sessions Judge on appeal, in order to satisfy himself, has referred to the Classified List of Establishment of Indian Railways and the same has also been produced before us for our information.
This shows that both the Divisional Personnel Officer as well as Superintendent Power are officers in the senior scale drawing equal scales of pay, Rs. 625 50 1375.
This is an indication that they are officers of the same rank and confirms the oral evidence of P.W. 4 who being the Head clerk of the Divisional Superintendent 's office must be competent to speak about these matters.
It certainly cannot be said that the Superintendent Power who has granted the sanction for prosecution of the appellant at the time working under him, is of a rank or a grade lower than the Divisional Personnel Officer who appointed the appellant.
This matter would probably have been more satisfactorily clarified in the trial court if the question as to the validity of the sanction had been raised not merely with reference to the wording of section 6 of the Prevention of Corruption Act but also as read with article 311(1) of the Constitution and rule 1705(c) of the Railway Establishment 972 Code.
On the material we are not satisfied that there is any reason to reverse the findings of the courts below that the sanction is valid.
All the contentions raised before us are untenable.
This appeal must accordingly fail.
It has been represented to us that the appellant who has been refused bail by this court when leave to appeal was granted but has been granted bail subsequently has already served nearly six months of imprisonment in the intervening period, that he is a young man and has lost his job.
In the circumstances we consider that it is not necessary to send him back to jail.
The result, therefore, is that the appeal is dismissed subject to the modification of sentence of imprisonment.
We reduce the sentence of imprisonment to the period already undergone.
The sentence of fine stands.

dataset_name: IN-Abs

summary/full:
When a public servant is charged under section 161 of the Indian Penal Code, and it is alleged that the illegal gratification was taken by him for doing or procuring an official act, it is not necessary for the Court to consider whether or not the accused as public servant was capable of doing or intended to do such an act.
In a case where the illegal gratification is alleged to have been received by the accused as a public servant for influencing some superior officer to do an act, the charge framed against such accused under section 161 of the Code need not specify the particular superior officer sought to be so influenced.
It view of article 311(1) of the Constitution of India and rule 1705(c) of the Indian Railway Establishment Code, Volume 1 (1951 Edition) a sanction under section 6(c) of the Prevention of Corruption Act, 1947 (as it existed prior to August 12, 1952) may be given either by the very authority who appointed the public servant or by an authority who is directly superior to such appointing authority in the same department.
But such sanction is also legal if it is given by an authority who is equal in rank or grade with the appointing authority.
Sanction is invalid if it is given by one who is subordinate to or lower than the appointing authority.


judgement:
Appeal No. 381 of 1970.
Appeal from the judgment and order dated December 22, 1969 of the Delhi High Court in Civil Writ No. 746 of 1969.
Niren De, Attorney General and section P. Nayar, for the appellant.
Sardar Bahadur, Vishnu Bahadur, and Yougindra Khushalani, for respondent No. 1.
G. section Chatterjee, for respondent No. 2.
Hegde, J. 'In this appeal by certificate the only question that was canvassed before us was as regards the validity of the order contained in memorandum No. F. 16 42/68 S 1, dated August 13, 1969 issued by the Government of India, Ministry of Education and Youth Services, retiring the 1st respondent compulsorily from government service in exercise of the powers conferred under cl.
(j) of Fundamental Rule 56 with effect from August 14 1969.
That order was attacked before the High Court on various grounds.
The High Court rejected some of those grounds.
It did not find it necessary to decide ' a few others but accepting the contention of the respondent that in making the order, the appellant had violated the principles of natural justice, it held that the impugned order is invalid The High Court accordingly issued a writ of certiorari quashing that order.
Before us the only contention presented for our decision was whether the High Court was right in holding that in making the impugned order the appellant had violated the principles of natural justice.
No other contention was taken before us.
Hence we shall address ourselves only to that question.
793 Before proceeding to examine the contention above formulated it is necessary to set out the material facts.
The 1st respondent.
herein Col. J. N. Sinha successfully competed in the examination held by the Federal Service Commission in 1938 for the post of Extra Assistant Superintendent in the Survey of India Service.
After selection, he was appointed as an Extra Assistant Superintendent.
He worked as probationer for a period of three years and thereafter he was confirmed in that post in 1941.
During the second world war, he Volunteered for active service in the army and was granted an emergency Commission in the army.
He was granted a regular commission in the army with effect from October 23, 1942.
In exercise of the powers conferred by the proviso to article 309 of the Constitution, the President of India made on August 17, 1950 rules called the Survey of India (Recruitment from Corps of Engineering Officers) Rules, 1950 for regulating the recruitment and conditions of service of persons appointed from the Corps of Engineering Officers of the Defence Ministry to the Survey of ' India Class I Service.
Rule 2 of the said Rules provides for the recruitment of Military Officers to the Survey of India Class I Service and Rule 3 provides that the recruited officers will be on probation for two years which may be extended by the Government on the advice of the Surveyor General.
The 1st respondent was taken into the Survey of India Class I Service under Rule 2 of the aforesaid 1950 Rules as Deputy Superintendent Surveyor with effect from June 1951.
Thereafter the President of India in .exercise of the powers under the proviso to article 309, made on July 1, 1960 the Survey of India Class I (Recruitment) Rules, 1960 for regulating the recruitment of Survey of India Class I Service.
The 1st respondent was subsequently promoted firstly as Superintending Surveyor and then as Deputy Director.
After sometime he was promoted as Director and lastly as Director (Selection Grade).
The last mentioned promotion was made with effect from October 27, 1966.
On May 17, 1969, Fundamental Rule 56(j) was amended.
Thereafter on August 13, 1969, the Ministry of Education and Youth Services issued the impugned order.
The 1st respondent was given three months pay and allowances in lieu of three months notice prescribed in Fundamental Rule 56(1).
The 1st respondent being aggrieved by that order, challenged the validity of the same.
As mentioned earlier, the High Court accepted his plea.
The Union of India has appealed against that order.
Fundamental Rule 56(j) reads "Notwithstanding anything contained in this Rule the appropriate authority shall, if it is of the opinion that it is in the public interest so to do have the absolute right 794 to retire any Government servant by giving him notice of not less than three months in writing or three months pay and allowances in lieu of such notice (i) if he is in Class I or Class II Service or post the age limit for the purpose of direct recruitment to which is below 35 years, after he has attained the age of 50 years.
(ii) In any other case after he has attained the age of 5 5 years.
Provided that nothing in this clause shall apply to a Government servant referred to in clause (e) who entered Government service on or before 23rd July, 1966 and to a Government servant referred to in clause (f ) .
" The order impugned merely says that in pursuance of cl. 5 6 ,the President was, pleased to decide that in public interest the 1st respondent should retire from government service with effect from August 13, 1969 and that he would be given three months pay and allowances in lieu of three months notice provided in the said rule.
No reasons are given for compulsorily retiring the 1st respondent.
Admittedly no opportunity was given to him to show cause against his compulsory retirement.
The failure on ' the part of the concerned authority to give an opportunity to the 1st respondent to show cause against his compulsory retirement was held by the High Court to have amounted to a contravention of the principles of natural justice.
The validity of Fundamental Rule 56(j) was not questioned before the High Court nor before us.
Its validity is not open to question in view of the decision of this Court in T. G. Shivacharana Singh and Ors.
vs State of Mysore(1).
Fundamental Rule 56(j) in terms does not require that any opportunity should be given to the, concerned government servant 'to show cause against his compulsory retirement.
A government servant serving under the Union of India holds his office at the pleasure of the President as provided in article 310 of the Constitution.
But this "Pleasure" doctrine is subject to the rules or law made under article 309 as well as to the conditions prescribed under article 311.
Rules of natural justice are not embodied rules nor can they be elevated to the position of fundamental rights.
As observed by this Court in Kraipak and Ors.
vs Union of ' India(2) "the aim of rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice.
These rules can operate only in areas not covered by any law validly made.
In other words they do not supplant the law but supplement it.
" It (1) A. I. R. (2) A. I. R. 795 is true that if a statutory provision can be read consistently with the principles of natural justice.
the courts should do so because it must be presumed that the legislatures and the statutory authorities intend to act in accordance with the principles of naural justice.
But if on the other hand a statutory provision either specifically or by necessary implication excludes the application of any or all the principles of natural justice then the court cannot ignore the mandate of the legislature or the statutory authority and read into the concerned provision the principles of natural justice.
Whether the exercise of a power conferred should be made in accordance with any of the principles of natural justice or not depends upon the express words of the provision conferring the power, the nature of the power conferred, the purpose for which it is conferred / and the effect of the exercise of that power.
Now coming to the express words of Fundamental Rule 56(j), it says that the appropriate authority has the absolute right to retire a government servant if it is of the opinion that it is in the public interest to do so.
The right conferred on the appropriate authority is an absolute one.
That power can be exercised subject to the conditions mentioned in the rule. ' one of which is that the concerned authority must be of the opinion that it is in public interest to do so.
If that authority bona fide forms that opinion, the correctness of that opinion cannot be challenged before courts.
It is open to an aggrieved party to contend that the requisite opinion has not been formed or the decision is based on collateral grounds or that it is an arbitrary decision.
The 1st respondent challenged the opinion formed by the government on the ground of mala fide.
But that ground has failed.
The High Court did not accept that plea.
The same was not pressed before us.
The impugned order was not attacked on the ground that the required opinion was not formed or that the opinion formed was an arbitrary one.
One of the conditions of the 1st respondent 's service is that the government can choose to retire him any time after he completes fifty years if it thinks that it is in public interest to do so.
Because of his compulsory retirement he does not lose any of the rights acquired by him before retirement.
Compulsory retirement involves no civil consequences.
The aforementioned rule 56(j) is not intended for taking any penal action against the government servants.
That rule merely embodies one of the facets of the pleasure doctrine embodied in article 3 1 0 of the Constitution.
Various considerations may weigh with, the appropriate authority while exercising the power conferred under the rule.
In some cases, the government may feel that a particular post may be more usefully held in public interest by an officer more competent than the one who is holding.
It may be that the officer who is holding the post is not inefficient but the appropriate authority may prefer to have a more efficient officer.
It may further be 796 that in certain key posts public interest may require that a person of undoubted ability and integrity should be there.
There is no denying the fact that in all organizations and more so in government organizations, there is good deal of dead wood.
It is in public interest to chop off the same.
Fundamental Rule 56(j) holds the balance between the rights of the individual government servant and the interests of the public. 'While a minimum service is guaranteed to the government servant, the government is given power to energise its machinery and make it more efficient by compulsorily retiring those who in its opinion should not be there in public interest.
It is true that a compulsory retirement is bound to have some adverse effect on the government servant who is compulsorily retired but then as the rule provides that such retirements can be made only after the officer attains the prescribed age.
Further a compulsorily retired government servant does not lose any of the benefits earned by him till the date of his retirement.
Three months ' notice is provided so as to enable him to find out other suitable employment.
In our opinion the high Court erred in thinking that the compulsory retirement involves civil consequences.
Such a retirement does not take away any of the rights that have accrued to the government servant because of his past service.
It cannot be said that if the retiring age of all or a section of the government servants is fixed at 50 years, the same would involve civil consequences.
Under the existing system there is no uniform retirement age for all government servants.
The retirement age is fixed not merely on the basis of the interest of the government servant but also depending on the requirements of the society.
The High Court was not justified in seeking support for its conclusion from the decision of this Court in State of Orissa vs Dr. (Miss) Binapani 'Dei and ors.(1) and A. K. Krailpak vs Union of India( ').
In Binapani Dei 's case( ') Dr. Binapani Dei 's date of birth was refixed by the government without giving her proper opportunity to show that the enquiry officer 's report was not correct.
It is under those circumstances this Court held that the order refixing the date of birth was vitiated for failure to comply with the principles of natural justice.
Therein the impugned order took away some of the existing rights of the petitioner.
In Krapak 's case( '), a committee consisting of Chief Conservator of, Forest, Kashmir and others was appointed to recommend names of the officers from Kashmir Forest Service for (1) ; (2) A.I.R. 1970 S.C. 150. 797 being selected for the Indian, Forest Service.
The Chief Conservator of Forests, Kashmir was one of the candidates for selection.
Further it was established therein that some of the officers who competed with him had earlier challenged his seniority and consequently his right to be the Chief Conservator and that dispute was pending.
Under those circumstances this Court held that there was contravention of the principles of natural justice.
For the reasons mentioned above, we are unable to agree with the conclusion reached by the High Court that the impugned order is invalid.
We accordingly allow this appeal, set aside the judgment and decree of the High Court and dismiss the writ petition.
In the circumstances of the case we make no order as to costs.
[The Court by order dated November 18, 1970 and January 19, 1971 on an application for review filed by the respondent vacated its order dismissing the writ petition.
Instead, the proceedings were remanded to the High Court for decision on such points as were not, dealt with and decided in the judgment of that court.
Ed.] G.C. Appeal allowed.
Proceedings remanded.

summary/full:
The first respondent joined the post of Extra Assistant Superintendent in the Survey of India Service in 1938.
Later he was taken into the Class I Service of the Survey of India and rose to the post of Deputy Director.
He also officiated as Director.
On August 13, 1969 the President of India pleased by an order under Rule 56(j) of the Funda mental Rules to compulsorily retire the first respondent from Government service.
No reasons were given in the order.
The appellant challenged the order by a writ petition in the High Court.
The failure on the part of the concerned authority to give opportunity to the first respondent to show cause against his compulsory retirement was held by the High Court to have amounted to a contravention of the principles of natural justice.
Against the judgment of the High Court the Union of India appealed.
HELD : Rules of natural justice are not embodied rules nor can they be elevated to the position of fundamental rights.
As observed by this Court in Kralpak 's case these rules can operate only in areas not covered by any law validly made.
If a statutory provision can be read consistently with the principles of natural justice, the Courts should do so because it must be presumed that the legislatures and the statutory authorities intend to act in accordance with the principles of natural justice.
But on the other hand a statutory provision either specifically 'or by necessary implication excludes the application of any or all the principles of natural justice then the court cannot ignore the mandate of the legislature or the statutory authority and read with the concerned provision the principles of natural justice.
Whether the exercise of a power conferred should be made in accordance with any of the principles of natural justice or not depends upon the express words of the provision conferring the power, the nature of the power conferred, the purpose for which it is conferred and the effect of the exercise of the power.
[794 G 795 C] Fundamental Rule 56(i) does not in terms require that any opportunity should be given to the concerned Government servant to show cause against his compulsory requirement.
It says that the appropriate authority has the absolute right to retire a government servant if it is of the opinion that it is in the public interest to do so.
If that authority bona fide forms that opinion the correctness of that opinion cannot be challenged before courts, though it is open to an aggrieved party to contend that the requisite opinion has not been formed or the decision is based on collateral grounds or that it is an arbitrary decision.
The respondent had not challenged the impugned order on any of these grounds.
[795 D F] Compulsory retirement does not involve any civil consequence.
A person retired under Rule 56(i) does not lose any of the rights acquired 792 by him before retirement.
The rule is not intended for taking any penal action against government servants.
It merely embodies one of the facets of the pleasure doctrine embodied in article 310 of the Constitution.
The rule holds the balance between the, rights of the individual government servant and the interests of the public.
While a minimum service is guaranteed to the government servant, the government is given power to energise its machinery and make it more efficient by compulsorily retiring those who in its opinion should not be there in public interest.
Three months notice is provided to enable the retired employee to find out other suitable employment.
[795 G 796 B] On the above view of the law, namely, that no notice to show cause was required, the appeal must be allowed.
T. G. Shivacharana Singh vs State of Mysore, A.I.R. 1965 S.C. 280.
Kraipak and Ors.
vs Union of India, A.I.R. 1970, S.C. 150, State of Orissa vs Dr. (Miss) Binapani Dei and Ors., ; distinguished.


judgement:
Appeals Nos. 326 and 327 of 1967.
Appeals from the judgments and orders dated May 3, 1966 of the Madhya Pradesh High Court in Misc.
Civil Cases Nos. 186 of 1963 and 39 of 1964.
M. C. Chagla, Ashoke Chitale and Rameshwar Nath, for the appellant (in both the appeals).
section C. Manchanda, G. section Sharma, R. N. Sachthey and B. D. Sharma, for the respondent (in both the appeals).
The Judgment of the Court was delivered by HEGDE, J.
The question of law arising for decision in these appeals by certificate under section 66A(2) of the Indian Income tax Act, 1922 (to be hereinafter referred to as the Act) is "Whether on the facts and in the circumstances of the case, the managing directors remuneration received by Sri Rajkumar Singh was assessable in his individual hands and not in the hands of the assessee Hindu Undivided Family ?" This question was referred by the Income tax Appellate Tribunal, Bombay Bench 'A to the High Court of Judicature at Bombay on an application made under section 6(1) of the Act by the Commissioner of Income tax, Madhya Pradesh.
The High Court has answered that question in favour of the Revenue.
As against that decision this appeal has been brought.
The assessee in this case is a Hindu Undivided Family and the concerned assessment year is 1954 55, the relevant accounting period being the year ending Diwali 1953 i.e., November 6, 1953.
Previously a Hindu Undivided Family was carrying on business under the name and style of Sarupchand Hukamchand.
That family was carrying on several businesses one of which was the management of certain mills.
That family disrupted on March 750 30, 1950.
The assessee is the branch of that family.
On March 31, 1950, a company under the name and style of Sarupchand Hukumamchand Private Ltd. was incorporated.
The capital of the company consisted of Rs. 5 crores divided into 20,000 preference shares of Rs. 1,000 each and Rs. 3,000 ordinary shares of Rs. 1,000 each.
The company itself was incorporated for the purpose of acquisition from M/s. Sarupchand Hukumchand, certain managing agencies, businesses, factories and properties and for that purpose to enter into an agreement with the said firm and to carry on business as managing agents of Rajkumar Mills Ltd., the Hukamchand Mills Ltd. and the Hira Mills Ltd. and the other businesses mentioned more particularly in the Memorandum of Association of the company.
The first Directors of the company were (1) Sir Hukamchand Saroopchandji (2) Rajkumarsingh Hukamchandji (3) Lady Kanchanbai Hukamchandji (4) Mrs. Premkumaridevi Rajkumarisinghji (5) Raja Bahadursingh Rajkumarsinghji (6) Rustomji Cowasji Jall.
The qualification prescribed for a director under article 53 was the holding of at least 10 shares in the company whether preference or ordinary or partly preference or partly ordinary.
article 55 provided that the Directors may from time to time, appoint one or more of their body to the office of managing Director or manager on such terms and at such remuneration as may be determined by the Directors.
In pursuance of the powers conferred on them under article 55, the Directors by their resolution dated March 31, 1950 appointed for the purpose of management of the business of the company Sir Hukumchand Rajoahadur, Rajkumar and Rajabahadur as managing Directors of ',he company on a remuneration of Rs. 5,0001 per month for each of them for their services.
Under article 63, the Directors were given certain powers for the management of the company.
they were subject to the control of the Board of Directors.
The three branches of the, original Hindu Undivided Family namely the branches of Sir Seth Hukumchand, Lady Kanchanbai and Sri Rajkumarsingh, were allotted 5,000 shares of the face value of Rs. 1,000 each.
The assessee 's branch represented by its Karta got 5,000 shares.
Rajkumar acquired 30 further shares in the name of his wife, Premkumari and 10 shares in the name of Rajabahadur.
The consideration for all these subsequent acquisitions was admittedly from the Hindu Undivided Family funds.
All the 5,030 shares were treated in the books, and the 751 balance sheet of the assessee family as its property.
The dividends in respect of these shares were also credited to the account of the family.
Sir Hukumchand died and after his death the other two continued to be the managing Directors.
For the years 1951 52, 1952 53 and 1953 54, the receipt of this Rs. 5,00011 per month received as remuneration was treated as the income of Rajkumar as an individual and assessed on that basis.
Similarly the remuneration received by Sir Hukumchand and Rajabahadur have been and continued to be assessed as their individual income.
In making the assessment of the assessee in the year 1954 55, the Income tax Officer referred to this item in the following words "It was claimed that the income from managing directors remuneration and from directors fees is assessable in his hands in individual capacity.
As was done in the early assessments also.
" For that reason he did not assess the sum of Rs. 60,000/and the sitting fee of Rs. 1,420/ received by Rajkumar in the account year relevant to the assessment year 1954 55 in the hands of the Hindu undivided family but they were assessed in, the hands of Rajkumar as an individual.
On January 10, 1961, the Commissioner of Income tax, in exercise of his power under section 33(B) issued a notice to the assessee to show cause why the assessment of the assessee for the assessment year 1954 55 should not be revised by treating the sum of Rs. 60,000/ plus Rs. 1,42O/ as the income of the assessee Hindu Undivided Family of which Rajkumar was the Karta.
The assessee opposed that notice.
He claimed the amount in question as his individual income.
The Commissioner did not accept the contention of the assessee and purporting to rely on the decision of this Court in Commissioner of Income tax, West Bengal vs Kalu Babu Lal Chand,(1) held that income was of the assessee.
He taxed the assessee accordingly.
Aggrieved by that decision, the assessee took ' us the matter in appeal to the Income tax Appellate Tribunal.
Before the tribunal, learned Counsel for the assessee conceded that the sitting fee of Rs. 1,420/ may be treated as the income of the assessee.
Hence the dispute centered round the sum of Rs. 60,000,/ received by Rajkumar as salary.
The tribunal upheld the contention of the assessee.
The tribunal after tracing the history of the Private Ltd.
Co. of Rajkumar was a Director and the manner in which the earlier assessments were made observed : "From the facts set out above it is clear that this is not a part and parcel of the same transaction or the same scheme of arrangement.
Whatever may be said of (1) 37 I. I. T. R. 123.; 752 the bigger Hindu undivided family, it was sheer accident of circumstances that the smaller Hindu undivided family came to hold these shares.
Both Rajkumar and Rajabahadur belong to the same branch and both of them are managing directors.
The managing directors were appointed by a resolution of the Board of Directors and they were subject to removal by the Directors at any time.
The appointment of managing director was not conditioned upon either Rajkumar or Rajabahadur acquiring these shares.
On the disruption of the larger Hindu undivided family the smaller Hindu undivided family got for its share certain shares.
Whatever may be said of the directors. ' fees, that having been now conceded as income of the Hindu undivided family, the same cannot be said of the managing directors ' remuneration.
The managing director holds office by virtue of the resolution of the Board of Directors.
He may not be a servant of the Company but still he receives his salary for his personal services.
The contribution of the capital may at best be considered as acquiring the qualification of a director.
It is not all people who hold shares that could automatically aspire +to be managing directors.
There is no evidence to show that Rajkumar and Rajabahadur were appointed managing directors on behalf of the family or that the income was earned by utilizing the joint family property or was detriment to the family property.
There is no material in this case to hold that the acquisition of the business or flotation of the company and the appointment of the managing directors were inseparably linked together.
As already noticed right up to the accounting year relevant to the present assessment year the income was treated as income of Rajkumar in his individual capacity.
It is true no doubt that there is no question of res judicata but this fact has certainly to be taken into consideration.
This income has been assessed under section 7.
It has been earned by Rajkumar for his services.
It has accrued in his hands.
It is open to him to give it over to the family and the mere fact that it was included in the family 's account or the balance sheet cannot in any event affect the question at issue. . .
Rajkumar was not appointed as managing director as a result of any outlay or expenditure of or detriment to the family property.
The managing directorship was an employment of personal responsibility and ability and the mere fact that certain qualification shares and other shares were property of the Hindu undivided 753 family was not the sole or even the main reason for his appointment to the responsible post of managing director.
We are clearly of the opinion therefore that the remuneration received by Rajkumar was assessable only in his hands as an individual and cannot be con sidered as and clubbed with the income of the Hindu undivided family." The High Court of Madhya Pradesh did not agree with the conclusion reached by the Income tax Appellate Tribunal.
It felt that in view of the, decision of this Court in Commissioner of Income tax, West Bengal vs Kalu Babu Lal Chand(1) the answer to the question referred to it should be in favour of the Revenue.
The question of law arising for decision in this case has been the subject matter of numerous decisions of this Court and of various High Courts.
But yet the law cannot be said to have been settled beyond controversy.
The two opposing view points to which we shall refer presently try to seek sustenance from one or the other decisions of this Court.
As far back as 1921 in Gokul Chand vs Hukum Chand Nath Mal( ') the Judicial Committee ruled "that there could be no valid distinction between the direct use of the joint family funds and the use which qualified the members to make the gains on his efforts".
In making this observation, the Judicial Committee appears to have been guided by certain ancient Hindu law texts.
That view of the law became a serious impediment to the progress of the Hindu society.
It is well known that the decision in Gokul Chand 's case( ') gave rise to great deal of public dissatisfaction and the central legislature was constrained to step in and enact the (30 of 1930) which nullified the effect of that decision.
Then came the decision of this Court in Commissioner of Income tax vs Kalu Babu Lal Chand.
(1) On the facts of that case, this Court held that the remuneration earned by Rohatgi as the managing director of a firm was the income of his Hindu Undivided Family.
The facts of that case were somewhat peculiar.
They were set out at p. 130 of the report.
It would be best to quote that passage which reads : "Here was the Hindu undivided family of which B. K. Rohatgi was the karta.
It became interested in the concern then carried on by Milkhi Ram and others under the name of India Electric Works.
The karta was one of the promoters of the company which he floated with a view to take over the India Electric Works as a going concern.
In anticipation of the incorporation of that company the karta of the family took over the (1) 69 Sup.
C.I. (P)/71 4 (2) 48, I. A. 162.
754 concern, carried it on and supplied the finance at all stages out of the joint family funds and the finding is that he never contributed anything out of his separate property, if, he had any.
The Articles of association of the company provided for the appointment as managing director of the very person who, as the karta of the family, had promoted the company.
The acquisition of the business, die flotation of the company and appointment of the managing director appear to us to be inseparably linked together.
The joint family assets were used for a cquiring the concern and for financing it and in lieu of all that detriment to the joint family properties the joint family got not only the shares standing in the names of two members of the family but also, as part and parcel of the same scheme, the managing directorship of the company when incorporated.
It is also signi ficant that right up to the accounting year relevant to the assessment year 1943 44, the income was treated as the income of the Hindu undivided family.
It is true that there is no question of res judicata but the fact that the remuneration was credited to the family is certainly a fact to be taken into consideration.
" The next came the decision of this Court in Mathura Prasad vs Commissioner, of Income tax( ').
The facts found in that case are more or less similar to those found in Kalu Babu Lal Chand 's case (2 ).
Those facts are : Mathura Prasad, the manager of his Hindu Undivided Family had entered into a partnership as representing his family of which he was the karta for the benefit of the family.
There was also no dispute that in the firm of Badri Prasad Jagan Prasad, the assets of the assessee family were ,vested.
The Tribunal found that Mathura Prasad, the manager, became a partner in the firm with the help of joint family funds and as partner he was entrusted with the management of the Agarwal Iron Works.
On the basis of those facts, it was held that the allowance received by Mathura Prasad was therefore directly related to the investment of the family funds in the partnership business.
In the course of the judgment, it was observed : " It was suggested that Mathura Prasad earned the allowance sought to be brought to tax because of the special aptitude he possessed for managing the Agarwal Iron Works, and the allowance claimed by him was not earned by the use of the joint family funds.
But no such contention was raised before the High Court.
We have been taken through the petition filed in the High (1) (2) 37 I.I.R. 123.
755 Court under section 66(2) of the Act, and there is no averment to the effect that Mathura Prasad had any special aptitude for management of the Agarwal Iron Works, and what was agreed to be, paid to him was as remuneration for performing services because of such aptitude.
" Then we come to the decision of this Court in Piyeare Lal Adishwar, Lal vs Commissioner of Income tax( '); Therein one Sheel Chandra, who was the karta of his Hindu Undivided family consisting of himself and his younger brother, furnished as security his family properties for being appointed the treasurer of a bank.
He would not have been appointed treasurer of the bank but for the security given.
In that case also, it was contended on behalf of the Commissioner of Income tax that the salary earned by Sheel Chandra was a family income and is liable to be taxed as such.
That contention was negatived by this Court.
From that decision it follows that it is not any add every kind of aid received from family funds which taints an income as family income.
Before 'an income earned by the exertions of a coparcener can be considered as a family income, a, direct and substantial nexus between the income in dispute and the family funds should be established.
On October 27, 1967, this Court rendered three different decisions namely V. D. Dhanwatey vs Commissioner of Income tax, M.p.(2), M. D. Dhanwatey vs Commissioner of Income tax, M.P.( ') and section RM.
Palaniappa Chettiar vs Commenr.
of Income tax, Madras (4 ) ; The facts in V. D. Dhanwatey 's case are : V. D. Dhanwatey as the karta of his Hindu undivided family was a partner of a firm.
His contribution to the capital of the firm belonged to the family.
Interest was payable on the capital contributed by each partner.
Under cl.
(7) of the deed of partnership the general management and supervision of the partnership business was to be in the hands of V. D. Dhanwatey.
Under cl.
( 1 6), he was to be paid monthly remuneration at the gross earning of the partnership business.
The question was whether the salary received by V. D. Dhanwatey was assessable in the hands of his Hindu Undivided Family.
On the above facts, the High Court held that the remuneration paid to V. D. Dhanwatey was only an increased share in the profits of the firm paid to V. D. Dhanwatey as representing his Hindu undivided family and hence the said amount was taxable in the hands of his undivided family.
By a majority decision this Court agreed with the view taken by the High Court.
This Court held that the remuneration paid by the firm to V. D. Dhanwate directly related to the invest (1) (3) (2) (4) 756 ments in the partnership business from the assets of the family and that there was real and sufficient connection between the investments from the joint family funds and the remuneration paid to him.
On that basis this Court ruled that the salary paid to V. D. Dhanwatey was assessable as the income of his Hindu Undivided Family.
The facts found in M. D. Dhanwatey 's case( ') were that M. D. Dhanwatey, as the karta of his Hindu undivided family was a partner in the firm.
His share in the capital of the firm was entirely contributed by the family.
Clause (5) of the deed, of partnership providedfor payment of interest to the partners on their share contribution.
Under Cl.
(8), he was to be the manager in charge of the works and under cl.
(16) he was to be paid a monthly remuneration.
The question was whether the salary received by him could be included in the total income of his Hindu undivided family.
This Court held that the salary received by him could be included in the total income of his Hindu undivided family.
In Pataniappa Chettiar 's case 2 the facts found are as fol lows : In 1934, the karta of a Hindu undivided family acquired 90 out of 300 shares in a transport company with the funds of the family.
There were initially four shareholders including the karta and two of them were directors.
On the death of one of them in 1941, the karta became a director of the company.
On the death of another, who was managing the business of the company, he became the managing director of the company in 1942.
At the relevant period he was entitled to a salary and a commission on the net profits of the company.
The managing director had control over the financial and administrative affairs of the company and the only qualification under its articles of association was the qualification of a, director, viz., the holding of not less than 25 shares in his own right.
The question was whether the managing director 's remuneration and commission and sitting fees received by the karta were assessable as the income of the family.
This Court held that the shares were acquired by the family not with the object that the karta should become the manazing director but in the ordinary course of investment and there was no real connection between the investment of joint family funds in the purchase of the shares and the appointment of the karta as managing director of the company.
The remuneration of the managing director was not earned by any detriment to the joint family assets.
Hence the amount received by the karta as managing director 's remuneration, commission and sitting fees were not assessable as the income of the Hindu undivided family.
(1) (2) 757 The next case decided by this Court was Commissioner Income tax, Mysore vs Gurunath Dhakappa(1).
Therein the karta of a Hindu Undivided family was a partner in a registered firm, representing his family.
He was appointed manager of the firm on a remuneration of Rs. 5001 per month.
For the assessment year 1960 61, he received a sum of Rs. 14,737/ from the firm including a sum of Rs. 6,000/ as, his salary for managing the firm 's business.
There, was no finding that the salary received, by the karta had directly related to the assets of the family utilised in the firm.
On the basis of those facts, this Court held that the sum of Rs. 6,OO0/ could not be treated as the income of the ' Hindu undivided family.
In the course of the judgment this Court observed "In the absence of a finding that the income which was received by Dhakappa was directly related to any assets of the family utilised in the partnership, the income cannot be treated as the income of the Hindu Undivided Family.
" Then we come to the decision of this Court in P. N. Krishna lyer vs Commissioner of Income tax, Kerala.
( ') Therein Krishna lyer, the karta of his Hindu undivided family received salary, commission and sitting fees as governing director of a private company which carried on transport business, The shares which qualified the karta to become a member of the company were purchased with the aid of joint family funds.
The entire capital assets of the company originally belonged to the joint family and were made available to the company in consideration of a mere promise to pay the amount for which the assets were valued.
dividends from shares of the value of Rs. 4,88,000 allotted to the karta by the company in consideration of valuable services rendered by him were also treated as belonging to the family.
The Tribunal held that the income from salary, commission and sitting fees earned by the karta was his separate income.
The High Court, on a reference, held that the income was assessable in the hands of the family.
On appeal this Court held that the question whether the income was the income of the Hindu undivided family or of the individual, was a mixed question of law and fact and the final, conclusion drawn by the tribunal from the primary evidentiary facts was open to challenge on the plea that the relevant principle has been misapplied by the tribunal.
On the facts of the case, this Court affirming the decision of the High Court held that the income was primarily earned by utilising the joint family assets or funds and the, mere fact that in the process of gaining the advantage an element of personal service or skill or (1) (2) 758 labour was involved did not alter the character of the Income.
Therein this Court further observed that in cases of this class the character of the receipt had to be, determined by reference to its source, its relation to the assets of the family of which the recipient was a member and the primary object with which the benefit received was disbursed.
Lastly we come to the decision of this Court in Commissioner of Income tax, Mysore vs D. C. Shah.
( ') Therein the respondent, a Hindu undivided family was the partner in two firms through its karta D. C. Shah.
The karta was paid by the two firms remuneration as a managing partner.
He was found to be a man of rich experience in the line of business which the two firms were carrying on.
Clause (8) of the partnership deed of the first firm provided that Shah who has been managing the business of the firm shall continue to act as managing partner for conducting the said business free from any interference of the other partners with power to manage, direct, appoint and/or remove, any one of the employees and/or do all other things including the right to draw cheques, to make, deliver and accept documents either legal or commercial in respect of the partnership business.
Clause (9) provided that Shah shall continue to be the managing partner for his lifetime or his retirement whichever is earlier.
In the deed of the second firm Clause (14) provided for appointment of another partner, K, as the managing partner and gave the managing partner powers similar to those in the deed of the other firm.
Clause (15) provided for Shah 's appointment after K 's retirement and Shah was appointed after his retirement.
No other partner was paid any salary in this firm.
On these facts this Court held that there was no real or sufficient connection between the investment of the joint family funds and the remuneration paid to Shah and that remuneration was not earned on account of any detriment to the joint family assets and the remuneration received by Shah as the managing partner of the two firms was not assessable as the income of his Hindu undivided family.
At first sight there appears to be conflict between the two lines of decisions namely Kalu Babu 's case, Mathura Prasad 's case; two Dhanwatey 's cases and Krishna Iyer 's case on one side Palaniappa Chettiar 's case, Dakappa 's case, and D. C. Shah 's case on the other.
The line that demarcates these two lines of decisions is not very distinct but on a closer examination that line can be located.
In order to find out whether a given income is that of the person to whom it was purported to have been given or that of his family, several tests have been enumerated in the aforementioned decisions but none of them excepting Kalu Babu 's case (1) 759 makes reference to the observations of Lord Sumner in Gokal Chand 's case that "in considering whether gains are partible, there is no valid distinction between the direct use of the joint family funds and a use which qualifies THe member to make the gains by his own efforts".
We think that principle is no more valid.
The other tests enumerated are : (1) whether the income received by a co parcener of a Hindu undivided family as remuneration had any real connection with the investment of the joint family funds; (2) whether the income received was directly related to any utilization of family assets; (3) whether the family had suffered any detriment in the process of realization of the income; and (4) whether the income was received with the aid and assistance of the family funds; In our opinion from these subsidiary principles, the broader principle that emerges is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener.
If it is the former, it is an income of the Hindu undivided family but if it is the latter then it is the, income of the individual coparcener.
If the income was essentially earned as a result of the funds in vested the fact that a coparcener has rendered some service would not change the character of the receipt.
But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu undivided family.
Applying the tests enumerated above to the facts found by the tribunal in the present case, there is hardly any room to doubt that the income in question was the individual income of Rajkumar.
He did not become the managing director of the firm for the mere reason that his family had purchased considerable shares in the firm.
He was elected as a managing director by the board of directors.
The tribunal has found that he received his salary for his personal services.
There is no material to hold that he was elected managing director on behalf of the family.
In the past the.
salary received by him was assessed as his individual income.
The same was the case as regards the salary received by the other managing ,directors.
The tribunal has found that he was not appointed as 760 managing director as a result of any outlay or expenditure of or detriment to the family property.
It has further found that the managing directorship was an employment of personal responsibility and ability.
In these circumstances we agree with the conclusions reached by the tribunal that the income in question cannot be treated as the income of the assessee.
For these reasons we are unable to agree with the High Court that the income in question can be held to be the income of the assessee.
Hence this appeal is allowed and in the place of the answer given by the High Court to the question referred to it, we answer that question as follows : On the facts and in the circumstances of the case the managing director 's remuneration received by Raj Kumar Singh was assessable as his individual income and not as the income of his Hindu undivided family.
The department shall pay the costs of the appellant both in this Court and in the High Court.
Hearing fee one set.
Y.P. Appeal allowed.

summary/full:
A Hindu undivided family carrying on management of a company disrupted into 3 branches, one being that of the assessee, and the shares of the company were more in the names of his family members.
The consideration for all these subsequent acquisitions was from the Hindu undivided family funds.
All the shares the previous and subsequent acquisition were treated in the books and the balance slice of the assessee family as its property and its dividends were also credited to the account of the family.
As Managing Director of the company the assessee received certain remuneration.
On the question whether the managing director 's remuneration received by the assessee was assessable in his individual hands or in the hands of the assessee 's Hindu undivided family, this Court HELD : The remuneration was assessable as the assessee 's individual income and not as the income of his Hindu undivided family.
The broad principle that has, to be applied in such cases is whether the remuneration received by the coparcener in substance though not in form was but one investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener.
If it is the former, it is an income of the Hindu undivided family but if it is the latter then it is the income of the individual coparcener.
If the income was essentially earned as a result of the funds in vested the fact that a coparcener has rendered some service would not change the character of the receipt.
But if on the other hand it is essentially a remuneration for the services rendered by a coparcener, the circumstances that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu undivided family.
[759 D] Applying the tests enumerated above to the facts found by the tribunal in the present case, there was hardly any room to doubt that the income in question was the individual income of assessee.
He did not become the managing director of the firm for the mere reason that his family had purchased considerable shares in the firm.
He was elected as a managing director by the board of directors.
The tribunal had found that he received his salary for his personal services.
There was no material to hold that be was elected managing director on behalf of the family.
In the past the salary received by him was assessed as hi , individual income.
The same was the case as regards the salary received by the other managing directors.
The tribunal had found that he was not appointed as managing director as a result of any outlay or expenditure of or detriment to the family property.
It had further found that the managing directorship was an employment of personal responsibility and ability.
[759 G] 749 Commissioner of Income, tax, West Bengal vs Kalu Babu Lal Chand, ; Mathura Prasad vs Commissioner of Income tax , Piyeare Lal Adhishwar Lal vs Commissioner of Income tax, ; V. D. Dhanwatey vs Commissioner of income tax M.P. ;M.D.Dhanwatey vs Commissioner of Income tax M.P. ;S.RM.CT.
Palaniappa Chettiar vs Commissioner of Income tax,Madras ; Commissioner of Income tax, Mysore vs Gurunath Dhakappa, P. N. Krishna Iyer vs Commissioner of Incometax Kerala, , and Commissioner of Income tax, Mysore v.
D. C. Shah, 73, I.T.R. 692, explained.
Principle laid down in Gokul Chand vs Hukum Chand Nath Mal, 48,I.A. 162; held no more valid.