judgement:
Appeals Nos. 55, 888 and 889 of 1962 and 518 to 520, 722, 724, 725, 727 to 729 & 732 to 735 of 1963.
Appeals from the judgment dated August 19, 1958, of the Madras High Court in Referred Case No. 52, R. C. No. 90, 43 and 82, 33, 58 to 60, 64 and 65 of 1955 and 97, 98, 102, 112, 113 and 115 of 1956, respectively.
C. K. Daphtary, Attorney General, section V. Gupte, Solicitor General, Gopal Singh, R. H. Dhebar and R. N. Sachtliey, for the appellant (in C. A. No. 55 of 1962).
C. K. Daphtary, Attorney General, section V. Gupte, Solicitor General, N. D. Karkhanis, R. H. Dhebar and R. N. Sachthey, for the appellant (in C. As.
888 889 of 1962 and 722, 724, 725, 728 to 729 and 732 to 735 of 1963) and for the respondents (in C. As.
Nos. 415 of 1962, 518 to 520 of 1963).
R. Ganapathy Iyer, for the appellants (in C. A. Nos.
518 to 520 of 1963) and for the respondents (in C. As.
55 of 1962, 888 to 889 of 1962 and 729, 732 and 735 of 1963).
K. Srinivasan and R. Gopalakrishnan, for the respondent (in C.A. Nos. 733 to 734 of 1963).
K. R. Chaudhuri, for the respondent (in C.A. No. 724 of 1963).
A. V. Viswanatha Sastri, K. Parasaran, K. Rajendra Chaudhuri and K. R. Chaudhuri, for the respondent (in C.A. No. 722 of 1963).
section Swaminathan and M. section Narasimhan, for the respondents ,(in C.A. Nos. 725 and 728 of 1963).
817 The Judgment of the Court was delivered by Subba Rao J.
These 16 appeals are filed against the Judg ment of the High Court of Judicature at Madras and raise the question of the effect of the Debtor and Creditor (Occupation Period) Ordinance No. XLII of 1948 of Malaya, hereinafter called the Ordinance, on the liability of the assessee to pay income tax in respect of pre occupation debts revived thereunder.
During the last World War Japan occupied Malaya.
During the period of their occupancy i.e., from February 1942 to September 1945, they introduced their own currency in dollars.
During that period both the currencies were in vogue though there was a progressive depreciation of Japanese currency in its relation to Malayan currency.
On September 5, 1945, the British Government re occupied Malaya and introduced the Malayan currency as legal tender in place of Japanese currency.
The Indian nationals, who were carrying on business in Malaya during the; period of Japanese occupation, were hit adversely and suffered losses.
The Government of India came to their rescue and by Notification dated August 14, 1947, they propounded a scheme to give them relief by allowing them to set off the losses incurred by them during the 5 years relevant to the assessment years 1942 43 to 1946 47 against the profits of the assessment years 1942 43 and 1941 42.
We shall consider the scheme in some detail at a later stage of the judgment.
On December 16, 1948, the Malayan Legislature passed the Ordinance declaring that payments made in Japanese currency by debtors to their creditors in respect of debts incurred prior to and during the Japanese occupation were to be valued and scaled down in accordance with the schedule appended to the Ordinance.
We shall deal with Ordinance in some detail at the appropriate place but the broad effect of the Ordinance was that though a debt had been discharged fully by paying the amount due in Japanese currency, the debt was revived in proportion to the depreciation of Japanese currency in relation to the Malayan currency as laid down by the schedule.
The creditor 's right to recover the debt to the said extent and the liability of the debtor to pay the same revived.
As the question raised is one of law and does not depend upon the peculiar facts of each case, we think it is enough if we 818 state briefly the facts of two cases, one illustrating the claim of an assessee against the imposition of income tax in respect of the income he realized by the revival of the debts and the other illustrating that of an assessee to an allowance on the ground that he paid the scaled down debts over again.
The respondent in Civil Appeal No. 722 to 735 of 1963 is a firm carrying on business of money lending in Kampar in Federated Malaya State.
It applied for relief under the special scheme.
It incurred loss for the aforesaid four years of Rs. 1,33,125.
For the years 1941 42 and 1942 43 it had a profit of Rs. 53,010 and Rs. 35,753 respectively.
The said profits were set off against the losses and the taxes paid by it for the years 1941 42 and 1942 43 were refunded to it.
After the Ordinance was passed, in terms of that Ordinance the respondent recovered 6,437 dollars during the previous year ending April 12, 1952 corresponding to the assessment year 1952 53.
Civil Appeals Nos.
518 to 520 of 1963 deal with the converse case.
The appellant therein is a Hindu undivided family carrying on, inter alia, a money lending business in its own village in Kaula Kubbu Bharu and Parit Buntar in the Federated Malaya States.
In the course of its business it had taken moneys as deposits from various persons before April 12, 1942.
During the period of occupation it discharged its liability to various creditors but after the publication of the Ordinance it had to pay again to creditors 6,214.58 dollars in the previous year ending April 12, 1950; 28,586 dollars for the previous year ending April 12, 1951; and 11,547 dollars for the previous year ending April 12, 1952.
The aforesaid amounts were claimed by the appellant as deductions respectively for the assessment years 1950 51, 1951 52 and 1952 53.
The following tabular form at a glance gives the claims of the assessees as creditors or debtors, as the case may be 819 1.
civil Appeal No. 2.
R.C. No. 3.
appellant 4.
Respondent 5.
Assessment year 6.
Claim 7.
Issue for determination 1.
722 t0 735 of 1963 & 55 of 1962 2.
33 of 1955 3.
of I.T., Madras 4. O. RM SP.
5. 1951 52 6.
$ 57395 69 7.
Creditor claims that the receipt is capital and not revenue.
Nil 2. 52 of 1955 3. do 4.
V. MR.
Firm Muar 5.
1951 52 6.
$39,851 7.
Nil 2. 58 of 1955 3.
VP.AL.
Chidambaram chettiar 5.
1951 52 6.
$9889 7.
Nil 2.
59 of 1955 3. do 4.
P. Alagappa Chettiar 5.
1951 52 6.
$355000 7.
Nil 2. 60 of 1955 3.
M. RM.
V. Venkatachalam Chettiar 5.
1951 52 6.
$9006 7.
Nil 2. 64 of 1955 3 do 4.
P. Alagappa Chettiar.
5. 1951 52 6.
$$35500 7.
Nil 2. 65 of 1955 3.
M. RM.
Swaminathan Chettiar 5.
1951 52 6.
$ 9006 7.
Nil 2.
97 of 1956 3.
M/s A.L.A. Firm 5. 1951 52 6.
$8388 7.
nil 2. 98 of 1956 3.
M. M. Firm 5.
1951 52 6. 6770 7.
Nil 2. 102 of 1956 3.
S.M. RM.
Meyyappa Chettiar & sons 5.
1950 51, 1951 52 6.
$1119, $3214 7.
Nil 2. 112 of 1956 3.
M. M. Firm (Penang) AR.
M. M. Arunachalam 5.
1953 54 6.
$2445 7 do 1.
Nil 2. 113 of 1956 3.
P. section R. M. Annamalai Subramaniam Chettiar 5.
1951 52 6.
$ 12004 7.
Nil 2. 115 of 1956 3.
M/s L. AR.
Firm 5.
1951 52 6.
$1979.62 7.
518 to 520 of 1963 2. 115 of 1956 3. O. V. R. SV.
Arunachalam Chettiar 4.
Commissioner of Income tax, madras 5.
1951 52, 1952 53 6.
$ 28, 586 $11, 574 7.
Debtor claims deduction , On account of this payment 1. 888 & 889 of 1962 2. 90 of 1955 3.
Commissioner of Income Tax, madras 4.
O. R. M. O. M. A. M. Chidambaram Chettiar 5.
1951 52 & 1952 53 6.
$ 6, 746 $664 7.
Creditor claims that the receipt is capital and not revenue.
Supp/64 9 820 The Income tax Officers held that during the period of Japanese occupation the debts were discharged and that the receipt of additional amounts under the Ordinance was in fact assessable to tax.
They also held that in the case of an assessee who was a debtor no deduction was permissible on the ground that the amounts paid represented only repayment of capital and not business expenditure.
On appeal the Appellate Assistant Commissioner held that the receipts by the assessee in respect of the revived debts were only realization of the original amounts lent and, therefore, could not be regarded as income.
In the case of the claim for deduction, he agreed with the view of the Income tax Officer.
On further appeal to the Tribunal, in the case of receipts it held that the assessee by claiming benefits under the scheme and in including all its cash and Bank balances in the Malayan business as part of the losses incurred therein in effect indirectly wrote off the debts due to them and, therefore, the recoveries under the Ordin ance were only a subsequent realization of the written off bad debts and, therefore, assessable to income tax.
In those appeals relating to deductions, the Tribunal confirmed the orders of the Appellate Assistant Commissioner.
The High Court answered the questions referred to it as follows: (1) Where an assessee has received repayments, he will not be liable to tax in respect of amounts he has received as or towards principal, but he will be so liable in respect of moneys which he has received as or towards interest.
Where only part of the debt has been recovered, the assesse will be at liberty, subject to the law relating to appropriation of payments, to appropriate the money he has received either towards principal or interest.
The assessment in respect of such receipts will proceed on this basis, that is to say, if the payment has been lawfully appropriated towards interest, will be liable to pay tax thereon.
But if he has lawfully appropriated it towards principal, he will not be liable to pay tax on it.
(2) Where an assessee has made payments, he will be entitled to deduct them from his income and claim exemption from tax for only such amounts as he has paid on account of interest.
He will not be entitled to deduct any payments on account of principal.
821 The Tribunal was directed to review the assessment in the light of the said directions.
The main reason given by the High Court for giving the said answers was that the result of the Ordinance was to revive the old debts and the question of the exigibility of the said income to tax can only be decided on the provisions of the Income tax Act and not by the terms of the scheme of the Ordinance.
Hence the appeals.
The learned Solicitor General, appearing for the Revenue, raised before us the following three points: (1) Sub section
(2) of section 4 of the Ordinance on which reliance was placed by the High Court applies only to pre occupation capital debts and the debts with which the appeals are concerned are not pre occupation capital debts and, therefore, they are not revived thereunder.
(2) The assessees having taken benefit under the scheme propounded by the Government of India which contained a condition that if any recoveries subsequently made would be taken as income,, they are now precluded from contending that the, amounts realized towards the revived debts are not taxable on the principle of approbate and reprobate.
And (3) on a reasonable construction of the relevant sections of the Ordinance it should be held that there was no revival of the debts but only that the State had provided for compensation for the losses incurred during the occupation period by the assessees.
The first question had not been raised at any stage of the proceedings before the Tribunal and the High Court.
Nor does it find a place in the statement of case.
We cannot, therefore, allow the learned Counsel to raise it for the first time before us.
Nor has the second question been raised in the High Court in the form in which it is presented before us.
The scheme propounded by the Government of India, inter alia, contains the following provisions : (i) No assessee was under any obligation to accept the scheme.
If he desired to opt for the scheme be was required to give option with one month after he was informed of the scheme.
(ii) An assessee was permitted to include in his expenses certain items which would be inadmissible under the Indian Income tax Act.
(iii) The losses suffered by an assessee during the five years relevant to the assessment years 1942 43 to 1946 47 were to be aggregated.
822 (iv) An assessee was permitted to carry the aggregated loss backward and set it off against his profits for the assessment year 1942 43.
(v) Any loss still unabsorbed could be carried backward to the year 1941 42.
(vi) Any excess tax found to have been paid after recomputing the income of an assessee by carrying his loss backward could be refunded to him.
(vii) The loss could not be carried forward.
The Central Board of Revenue issued further instructions on the above scheme by its letter dated December 1, 1947.
One of the instructions was that debts due to the assessee if paid in Japanese currency would be taken to have been satisfied to that extent and excluded from the asset side in the balance sheet, provided that if any recovery was subsequently made, it was to be taken as income.
Briefly stated, under the scheme the losses suffered by an assessee during the assessment years 1942 43 to 1946 47 were set off against his profits for the assessment years 1942 43 and 1941 42 and any unabsorbed loss could not be carried forward.
The debts discharged in Japanese currency were excluded from the assets side in the balance sheet but the authority reserved for itself the right to treat any recoveries subsequently made as income.
The contention is that the assessees having opted to accept the scheme, derived benefit thereunder, and agreed to have their discharged debts excluded from the asset side in the balance sheet subject to the condition that subsequent recoveries by them would be taxable income, they are now precluded, on the principle of "approbate and reprobate", from pleading that the income they derived subsequently by realization of the revived debts is not taxable income.
The doctrine of "approbate and reprobate" is only a species of estoppel; it applies only to the conduct of parties.
As in the case of estoppel, it cannot operate against the provisions of a statute.
If a particular income is not taxable under the Income tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine.
Equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not.
If it is not the Income tax Officer has no power to impose tax on the said income.
The decision in Amarendra Narayan Roy vs Commissioner of Income tax, West Bengal(1) has no bearing on the question raised (1) A.I.R. 1954 Cal.
271. 823 before us.
There the concessional scheme tempted the assessee to disclose voluntarily all his concealed income and he agreed to pay the proper tax upon it.
The agreement there related to the quantification of taxable income but in the present case what is, sought to be taxed is not a taxable income.
The assessee in such a case can certainly raise the plea that his income is not taxable under the Act.
We, therefore, reject this plea.
To appreciate the third argument it is necessary to notice the relevant terms of the Ordinance.
The Ordinance was issued by the Malayan Government to regulate the relationship between the debtor and creditor in respect of debts incurred prior to and during the period of the enemy occupation of the territories comprising the federation of Malaya.
The relevant sections of the Ordinance read: Section 4.
Discharge during occupation period of preoccupation debts : (1) Subject to the provisions of sub section
(2) of this section, where any payment was made during the occupation period in Malayan currency or occupation currency by a debtor or by his agent or by the Custodian or a liquidation officer purporting to act on behalf of such debtor, to a creditor, or to his agent or to the Custodian or a Liquidation Officer purporting to act on behalf of such creditor, and such payment shall be a valid discharge of such pre occupation debt to the extent of the face value of such payment.
(2) In any case (a) where the acceptance of such payment in occupation currency was caused by duress or coercion; or (b) where such payment was made after the thirtyfirst day of December 1943, in occupation currency in respect of a pre occupation capital debt, exceeding two hundred and fifty dollars in amount, which (i) was not due at the time of such payment; or (ii) if due, was not demanded by the creditor or by his agent on his behalf and was not payable within the occupation period under a time essence contract; 824 (iii) if due and demanded as aforesaid was not paid within three months of demand or within such extended period as was mutually agreed between the creditor or his agent and the debtor or his agent; or (c). . such payment shall be revalued in accordance with the scale set out in the Schedule to this Ordinance and shall be a valid discharge of such debt only to the extent of such revaluation.
THE SCHEDULE 1.
(a) : Where any such payment as it mentioned in sub section (2) of section 4 of this Ordinance was made in occupation currency during any month or on any day mentioned in the first column of the scale set out in paragraph 3 of this Schedule, such payment shall be revalued by taking the number of dollars in occupation currency set out opposite such month or day in the second column of the said scale as equivalent to one hundred dollars Malayan currency, and so in proportion for any portion of such payment amounting when revalued, to less than one hundred dollars Malayan currency.
(b) Where any such payment was made in occupation currency on or after the thirteenth day of August 1945, the value of such payment shall be taken to be nil.
(a) : In the case of an unsatisfied occupation debt or part thereof which falls to be revalued under section 6 of this Ordinance such debt or part thereof shall be revalued at the appropriate date as provided in the said section or sub section by taking the number of dollars in occupation currency mentioned opposite such month or day in the second column of the scale set out in paragraph 3 of this Schedule as equivalent to one hundred dollars Malayan currency, and so in proportion for any portion of such debt amounting, when revalued to less than one hundred dollars Malayan currency.
(b)When any such debt or part of a debt fell due for payment on or after the thirteenth day of August 1945,its value shall be taken to be nil.
Sliding scale of the value of occupation currency 1942 45.
We have not allowed the Solicitor General to contend that sub section
(2) of section 4 of the Ordinance does not apply to the debts in 825 question as throughout the proceedings of this case it was assumed that it applies to the said debts.
During the Japanese Occupation both the Japanese currency and the Malayan currency were in vogue.
In January 1943 the Japanese currency began to depreciate and by August 13, 1945, it ceased to be of any value.
During that process of devaluation debts were paid off and received in Japanese currency which resulted in loss to the creditors.
To regulate the relationship between creditors and debtors.
during that period the said Ordinance was passed by the Malayan Legislature on December 16, 1948.
Under the said Ordinance payments in Japanese currency were to be valued and scaled down in accordance with the Schedule appended to the Ordinance.
If a debtor had paid his debt in depreciated Japanese currency, he was required to pay over again a certain amount to be ascertained by the application of the provisions of the Schedule.
In terms sub section
(2) says that the payment in Japanese currency shall be a valid discharge of such debt only to the extent of such revaluation.
When the payments made towards debts were scaled down, the debts were revived in regard to the balance of the debt.
After the making of the Ordinance, the creditor could enforce his debt to the extent not discharged and the debtor had the obligation to discharge the same.
On the express terms of the Ordinance it is impossible to accept the contention that the State provided for compensation for the losses incurred bY the assessees.
indeed the State did not pay any compensation at all.
The legal relationship of the creditor and debtor was not created by the Ordinance but it was regulated on the basis of the pre existing relationship.
We, therefore, hold, agreeing with the High Court, that under the Ordinance the discharged debts became enforceable to the extent of the balance of the amount due after the scaling down of the payments.
If so, the Income tax Officer could only impose tax on the income recovered by the assessees thereafter towards their debts if such income was taxable under the provisions of the Act.
So too, in regard to the payment made by the assessees towards such debts they could claim relief by way of deductions only if such deductions were permissible under the Act.
The High Court held that the assessees who had received repayments would not be liable to tax in respect of amounts they had received towards principal but they would be so liable in respect of moneys which they had received towards interest.
It further held that those assessees who had made payments towards the 826 debts would be entitled to deduct from their income and claim exemption from tax only such amounts as they had paid on account of interest but they would not be entitled to deduct any payment made on account of principal.
The High Court also gave a direction that in the case of open payments the respective amounts paid towards principal or interest should be ascertained in accordance with the law of appropriation of payments.
Neither the learned Solicitor General, who appeared for the Revenue, nor the learned counsel, who appeared for the assessees, questioned the correctness of the said directions if the construction we placed on the Ordinance was correct.
The directions given by the High Court will, therefore, stand.
In our view, the High Court gave correct answers to the questions referred to it.
In the result the appeals are dismissed with costs.
One hearing fee.

summary/full:
The Japanese currency introduced into Malaya during the Japanese occupation began to depreciate after January 1963, so that debts paid off and received in that currency resulted in loss to the creditors.
The Government of India, by a notification issued in 1947, propounded a scheme to give relief to Indian nationals carrying on business in Malaya, and the Central Board of Revenue issued further instructions on the scheme.
One of the instructions was that if any creditors opted to accept the scheme, a recovery subsequently made by them, with respect to the debt due to them was to be taken as their income.
In 1948, the Debtor and Creditor (Occupation Period) Ordinance No. XLII of 1948, of Malaya was passed by the Malaya Legislature.
Under that Ordinance, payments made in Japanese currency were to be valued and scaled down in accordance with its Schedule, so that a payment in Japanese currency would be a valid discharge of a debt only to the extent of such revaluation.
A creditor could enforce his debt to the extent not discharged and the debtor was under an obligation to discharge it to that extent.
On the questions as to (i) whether amounts, recovered by creditors who had accepted the scheme, from their debtors, in terms of the Ordinance, were liable to income tax; and (ii) whether the debtors could claim the payments made by them as deductions, the High Court held, (i) that the assessees who had received payments would not he liable to tax in respect of amounts they had received towards principal, but they would be so liable in respect of moneys which they had received towards interest; and (ii) that those assessees who had made payments towards the debts, would be entitled to deduct from their income, and claim exemption from tax only such amounts as they had paid on account of interest, but they would not be entitled to deduct any payment made on account of principal.
The High Court also gave directions that open payments should be appropriated according to the law of appropriation of payments.
The Commissioner and a debtor assessee appealed to the Supreme Court.
HELD : The appeals should be dismissed.
(i) The creditor assessees were not ' precluded on the principle of "approbate and reprobate" from pleading that the income they derived subsequently, by realisation of the revived debts, was not taxable income.
The doctrine was only a species of estoppel and cannot operate against the statute.
If a particular income is not taxable under the Income tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine.
[822 F H] (ii) Under the Ordinance, the discharged debts became enforceable to the extent of the balance of the amount due after the scaling down of the 816 payments, and the contention of the Revenue that the State provided for compensation for the loss incurred by the creditor assessees could not be accepted.
[825 B E] (iii) The Income tax Officer could only impose income tax on the income recovered by the assessees thereafter towards their debts if such income was taxable under the provisions of the Act.
So too in regard to the payments made by the Assessees towards such debts, they could claim relief by way of deduction only if such deductions were permissible under the Act.
[825 F G]


judgement:
il Appeal No. 1062 of 1963.
Appeal by special leave from the judgment and order dated September 25, 1962, of the Assam High Court in Civil Rule No. 221 of 1962.
G. section Pathak and Naunit Lal, for the appellants.
M. K. Ramamurthy, for respondent No. 1.
The Judgment of the Court was delivered by Wanchoo J.
This is an appeal by special leave against the judgment of the Assam High Court.
Shri Ajit Kumar Sharma (hereinafter referred to as the respondent) is a teacher in the Handique Girls College (hereinafter referred to as the College) at Gauhati.
He filed a writ petition in the High Court on the following averments.
This is a private college teaching up to B.A. standard and affiliated to the Gauhati University established under the Gauhati University Act, No. 16 of 1947, (hereinafter referred to as the Act).
The College is managed by a Governing Body according to the provisions of the Statute for the management of private colleges framed by the Gauhati University under section 21 (g) of the Act.
Under section 23 (h) of the Act, the Executive Council may frame Ordinances to provide for the emoluments and conditions of service of teachers of the University, including teachers in private colleges.
The University has in 'Pursuance of the powers so conferred on it framed rules for the grant of leave to teachers of private colleges which are binding on the Governing Bodies of such colleges, and had actually been adopted by the Governing Body of the College in July 1956 for its teachers.
Under these rules the Governing Body of the College cannot compel a teacher to take leave without pay.
The College receives grant in aid from the State of Assam and there are certain conditions for giving grant in aid.
These conditions do not provide for withdrawal of the grant in aid if a private college fails to put a teacher, who seeks election to a legislative or local body, on compulsory leave without pay from the date of the filing of nomination till the end of the next academic Session or till expiry of the term of the office to which the teacher is elected.
892 The respondent as already stated is a teacher in the College.
He applied for leave with pay from January 2, 1962 to March 5, 1962 in order to contest a seat for Parliament.
This leave was granted to him by the Governing Body of the College by resolution No. 1 of March 9, 1962.
The respondent stood for election and was defeated.
He thereupon applied that he be permitted to rejoin his duties from March 6, 1962 and the Governing Body permitted him to do so by its resolution No. 2 dated Match 9, 1962.
He therefore worked as such from March 6, 1962.
On March 20, 1962, the Director of Public Instruction, Assam (hereinafter referred to as the Director) wrote a letter to the Principal and Secretary of the College with reference to the letter of March 10, 1962 from the College in which apparently the Director had been informed of the leave granted to the respondent and certain other teachers in connection with elections to Parliament and Assam Legislative Assembly.
In this letter, the Director informed the College that he was unable to approve the resolution of the Governing Body permitting respondent and certain other teachers to rejoin their duties "immediately".
The letter pointed out that such permission was in contravention of r. 7 of the Rules regarding the Conduct and Discipline of the Employees of Aided Educational Institutions (hereinafter referred to as the Rules) and could not therefore be approved.
The Director also added that the Rules had been framed in 1960 after due consultation with the University and the Assam College Teachers"Association.
On receipt of this letter, the Governing Body seems to have reconsidered the matter of leave to the respondent, and passed a resolution on April 4, 1962.
This letter along with another letter was considered by the Governing Body of the College, and it was resolved in view of these letters that the resolution of March 9, 1962, permitting the respondent to rejoin duties from March 6, 1962 could not be given effect to.
It was further resolved that the respondent and some other teachers be granted leave in accordance with the Rules.
This resolution of the Governing Body was conveyed to the respondent by the Principal of the College by letter dated April 5, 1962 and he was told that he had been granted compulsory leave without pay till the end of the academic session in view of his standing for election in the last general elections.
The respondent thereupon filed the writ petition in the High Court out of which the present appeal has arisen.
His contention was that the Rules to which the Director had made reference had no statutory force and that he was entitled to leave under the Rules framed by the Gauhati University, which had been accepted by the 893 College.
He also contended that the Rules not having the force of law did not affect the powers of the Governing Body of the College in the matter of its functions.
Consequently the second resolution of the Governing Body dated March 9, 1962 was proper and correct and the respondent was properly allowed to rejoin duty after the expiry of his leave on March 6, 1962.
The Director had no authority to interfere with the second resolution of the Governing Body dated March 9, 1962 and that resolutions of this character passed by a Governing Body did not require the approval of the Director and would have effect by themselves.
It was further contended that as the leave rules which.
govern the College did not give power to the Governing Body to put a teacher on compulsory leave without pay against his will and consent, the resolution of the Governing Body dated April 4, 1962 by which the respondent was put on compulsory leave without pay was of no effect and in any case the Governing Body should not have acted on the illegal direction of the Director.
Finally it was urged that the Governing Body acted as it did on a threat contained in the letter from the Additional Director dated March 19, 1962, in which it was said that the education department would not provide funds for salaries and allowances for any employee who had gone on leave in connection with elections in contravention of r. 7 of the Rules, and therefore the action of the Governing Body was bad and in any case the Director had no right to threaten the Governing Body in this way.
The respondent therefore prayed for a writ in the nature of certiorari / prohibition / mandamus declaring r. 7 of the Rules as having no legal force and also as having no binding character on the Governing Body or the respondent.
He further prayed that the resolution of the Governing Body dated April 4, 1962 be declared ultra vires, void and in effective in law, and the Director should be directed not to withhold the grant in aid to be given to the College on the failure of the Governing Body to put the respondent on compulsory leave without pay.
Before we consider the reply of the State, we would like to give the genesis of the Rules.
It appears that in February 1959 the State of Assam decided to grant additional grant in aid to private colleges to implement the recommendations of the University Grants Commission regarding scales of pay and other, emoluments to the teacher of such colleges.
Apparently these scales of pay and other emoluments were advantageous to the teachers and meant an improvement on their pay and other emoluments which they were getting from before.
It was further decided that such, 894 grant in aid should be given to private colleges on condition that the college authorities agreed to abide by certain rules regulating the conditions of service of their employees.
Accordingly it was decided to frame rules in consultation with the University and the Assam College Teachers ' Association.
Further the views of the Governing Bodies of all private colleges were also invited on the draft rules.
Among them, the Governing Body of the College was also consulted and it resolved on August 6, 1960 that it agreed with the proposed rules contemplated by the Government to be framed as communicated to it.
The Government also ascertained the views of the Gauhati University and the Assam College Teachers ' Association and eventually the Rules were notified by notification dated March 9, 1961, published on March 29, 1961.
Rule 7 of the Rules, which is material for our purposes is in these terms: "An employee desiring to seek election to the Legislative Body or to hold office with any political Organisation or local bodies shall be on compulsory leave without pay from the date of the filing of his nomination till the end of the next academic session or till the termination of the term of office to which he may be elected as the case may be.
Such employee however shall not be allowed to retain lien on his post for a period exceeding five years.
" The Rules therefore were framed in consultation with University and the Assam College Teachers ' Association, which presumably represents the teachers of all private colleges.
The Governing Body of the College was also consulted and it accepted the Rules to be promulgated.
In this Governing Body the members of the teaching staff of the College are well represented and it was after the concurrence of the University, the College Teachers ' Association and the Governing Body of the College in particular in which the teachers of the College were well represented that the Rules were notified.
The case of the appellants was that considering the manner in which the Rules were framed they were binding on the College as well as on the teachers of the College and it was thereafter that the Government gave the revised grants to the College.
It seems further that the case of the appellants was that the Rules had statutory force in view of the amendment of the Act by Assam Act 11 of 1961 by which a proviso was added to section 21 (g) of the Act whereby the Government was given power to make the 895 necessary rules in consultation with the University in respect of government colleges and government aided colleges.
There were certain other objections by the appellants, to which it is unnecessary to refer.
The Governing Body of the College was also made a party to, the writ petition and submitted a written statement.
It supported the stand taken by the State, and in particular pointed out that the Governing Body in which the teaching staff of the College was ten represented had accepted the Rules before they were notified.
In consequence the Government had been giving grant in aid to the College in accordance with the recommendations of the University Grants Commission by which the pay scales etc.
, of the teachers had been improved and the teachers had been receiving the pay and dearness allowance under this grant in aid.
No representation was ever made by any member of the teaching staff when the Rules were under consideration and were notified that he would not be bound by the Rules.
The teachers including the respondent having accepted the pay and dearness allowance under the scheme of the grant in aid given by the State on terms and conditions laid down in the Rules, the respondent was estopped from challenging the Rules which were in the interest of the College and education in general.
The Governing Body in particular was bound by the Rules having accepted them and the resolution of April 4, 1962, was not passed on.
account of any threat by the Director.
The main question that was argued before the High Court was whether the Rules in question had statutory force.
Alternatively, it was argued that even if the Rules had no statutory force and were mere executive instructions for the purpose of grant in aid, the High Court should not issue a writ against the State or the Director interfering with such administrative instructions issued by the Director.
It was further urged that if the Rules were mere executive instructions which had been accepted by the Governing Body of the College in which the teachers of the College were well represented, they would be in the nature of contractual obligations which could not be enforced by the issue of a writ under article 226.
The High Court first considered the question whether the Rules had statutory force and came to the conclusion that they could not be said to be issued under the proviso to section 21(g) of the Act on which reliance was placed and therefore did not have any statutory force.
But the High Court further held that even if the Rules had no statutory force it was open to it to issue a mandamus under article 226 to the Director, who is a public authority, to refrain from, giving effect to the Rules which had no statutory force.
It 896 therefore made a direction to the Director not to give effect to his letter of March 20, 1962.
Further it was urged before the High Court that the Governing Body of the College was not a statutory body and therefore no writ or direction could issue to it and the remedy of the respondent was to go to the civil court to enforce his right (if any).
The High Court however held that the words of article 226 were wide enough and did not confine its power to the issue of writs, directions or orders in the nature of mandamus; they gave power to issue directions, orders or writs which the Court considered proper in the circumstances of each case and such direction could be issued for any purpose.
The High Court therefore held that as the Governing Body had not applied its independent mind to the question of leave, it could issue a direction to it also.
The High Court however did not decide whether the Governing Body was a statutory body or not, and in the result directed the Governing Body also not to give effect to the letter of the Director dated March 20, 1962.
Thereupon there was a prayer to the High Court on behalf of the State and the Director for leave to appeal to this Court, which was refused.
Then the State and the Director applied to this Court for special leave which was granted; and that is how the matter has come up before us.
It may be mentioned that the Governing Body of the College has been made a respondent in the appeal before us.
The main question which falls for decision in this appeal is whether the High Court is right in issuing a writ of mandamus to the State through the Director directing it not to give effect to the letter of March 20, 1962.
It has not been contended on behalf of the appellants that the Rules have statutory force and :the arguments before us have been made on the basis that the Rules have no statutory force and are mere executive instructions given by the Government to private colleges as a condition for the implementation of pay scales etc., recommended by the University Grants Commission for private colleges, these scales being apparently higher than those existing from before.
It seems to us that the High Court was in error in granting a writ of mandamus against the State through the Director once it found that the Rules bad no statutory force and were mere administrative instructions for the purpose of giving grant in aid to private colleges.
What grants the State should make to private educational institutions and upon what terms are matters for the State to decide.
Conditions of these grants may be prescribed by statutory rules; there is 'however no law to prevent the State from prescribing the conditions 897 of such grants by mere executive instructions which have not the force of statutory rules.
In the present case the Rules have been framed in order to give revised grants to private colleges to enable them to give higher scales of pay etc., to their teachers in accordance with the recommendation of the University Grants Commission.
The Rules have been held by the High Court to have no statutory force, and that is not disputed before us.
In these circumstances it is clear that the Rules are mere executive instructions containing conditions on which grants would be made to private colleges to implement the recommendations of the University Grants Commission as to pay scales etc., of teachers of private colleges.
Where such conditions of grant in aid are laid down by mere executive instructions, it is open to a private college to accept those instructions or not to accept them.
If it decides not to accept the instructions it will naturally not get the granted which is contingent on its accepting the conditions contained in the instructions.
On the other hand, if the college accepts the conditions contained in the instructions, it receives the grant in aid.
If however having accepted the instructions containing the conditions and terms, the college does not carry out the instructions, the Government will naturally have the right to withhold the grant inaid.
That is however a matter between the Government and the private college concerned.
Such conditions and instructions as to grant in aid confer no right on the teachers of the private colleges and they cannot ask that either a particular instruction or condition should be enforced or should not be enforced.
It is only for the Governing Body of the College to decide whether to carry out any direction contained in mere administrative instructions laying down conditions for grant in aid.
Further it is open to the Governing Body not to carry out any such instruction which is not based on rules having statutory force, and it will then be naturally open to the State to consider what grant to make.
But if the Governing Body chooses to carry out the instruction, it could hardly be said that the instruction was being carried out under any threat.
It is certainly not open to a teacher to insist that the Governing Body should not carry out the instruction.
The rules for the purpose of grant in aid being as in this case merely executive instructions confer no right of any kind on teachers and they cannot apply to the High Court for a mandamus asking for the enforcement or nonenforcement of the rules, even if indirectly there may be some effect on them because of the grant in aid being withheld in whole or in part.
Such mere administrative instructions even though called rules are only a matter between the Governing Body and the State 898 through the Director and cannot in our opinion form the basis of a petition for writ under article 226 by a teacher.
We may in this connection refer to Messrs. Raman and Raman vs The State of Madras(1) where this Court had to consider certain orders and directions issued under section 43A of the Motor Vehicles (Madras Amendment) Act, 1948.
The question arose whether the orders issued under section 43A had the status of law or not.
This Court held that such orders did not have the status of law regulating the rights of parties and must partake of the character of administrative orders.
It was further held that there could be no right arising out of mere executive instructions, muchness a vested right, and if such instructions were changed pending any appeal, there would be no change in the law pending the appeal so as to effect any vested right of a party.
That decision in our opinion governs the present case also, for it has been found by the High Court, and it is not disputed before us, that the Rules are mere administrative instructions and have not the force of law as statutory rules.
They therefore confer no right on the teachers of private colleges which would entitle them to maintain a writ petition under article 226 for the enforcement or non enforcement.
of any provision of the Rules.
The Rules being mere administrative instructions are matters between private colleges and the Government in the matter of grant in aid to such colleges, and no teacher of a college has any right under the Rules to ask either for their enforcement or for their non enforcement.
We are therefore of opinion that the High Court was in error when it granted a writ against the State through the Director, by which the Director was asked not to give effect to its letter dated March 20, 1962, against the Governing Body of the College.
Then we come to the question whether a writ could have been issued against the Governing Body of the College.
We find however that there is no appeal by the College against the order of the High Court issuing a writ against it.
In these circumstances we do not think that we can interfere with the order of the High Court insofar as it is against the Governing Body of the College.
At the same time we should like to make it clear that we should not be taken to have approved of the order of the High Court against the Governing Body of the College in circumstances like the pre sent and that matter may have to be considered in a case where it properly arises.
Before we leave this case we should like to add that it was stated on behalf of the State before us that even if the decision went in (1) [1959] Supp. 2 S.C.R. 227.
899 favour of the State, it would not enforce r. 7 insofar as the respondent is concerned, as the State was concerned merely with the clarification of the law on the subject.
In the result we allow the appeal and set aside the order of the High Court granting a writ against the State through the Director.
The State of Assam has agreed to pay counsel engaged amicus curiae for respondent, Ajit Kumar Sharma.
We therefore pass no order as to costs.
Appeal allowed.

dataset_name: IN-Abs

summary/full:
The respondent was a teacher in a private college affiliated to the Gauhati University in Assam.
The college was receiving grants in aid from the State on certain conditions set out in the form of Rules.
One of the rules, r. 7, provided that if a teacher stood for election to the Legislature, he should be on compulsory leave without pay from the date of filing of nomination till the end of the next academic session or, till the termination of the term of the office to which he may be elected.
The respondent applied for leave for three months and contested for a. seat in Parliament but was defeated.
So, he applied for permission to rejoin, and the Governing Body granted him the permission.
The Director of Public Instruction, however, pointed out that such permission was in contravention of the aforesaid rule, and therefore, the Governing Body informed the respondent that he had been granted compulsory leave without pay till the end of the academic session.
The respondent thereupon filed a petition in the High Court for the issue of a writ of mandamus or other appropriate direction on the grounds that : (i) the rule had no legal force, (ii) the rule did not bind the Governing Body or the respondent and (iii) the order of the Governing Body putting him on compulsory leave was ineffective.
He also prayed that the State should be directed not to withhold the grant inlaid to the college if the Governing Body did not impose compulsory leave on him.
The Governing Body was also made a party to the petition.
The High Court held that the rules had no statutory force, and issued a direction to the Director, as a public authority, to refrain from giving effect to.
such rules.
The High Court also issued a similar direction to the Governing Body, on the ground that it had not applied its independent mind to the question of respondent 's leave.
The State appealed to the Supreme Court, but did not dispute that the Rules were only administrative instructions.
HELD: The order of the High Court issuing a writ to the State through its Director should be set aside.
[899 B] The rules being mere administrative instructions have not the force of law as statutory rules.
They therefore confer no right on the teachers of private colleges which would entitle them to maintain a writ petition under article 226, for the enforcement or non enforcement of any provision of the rules.
They being mere administrative instructions, are matters between private colleges and the Government in the matter of grants in aid to such colleges, and no teacher of any college has any right under the rules to ask either for their enforcement or non enforcement.
It is open to the Governing Body not to carry out any such instructions and it will then be open to the State to consider what grant to make.
But if the Governing Body chooses to carry out the instructions it could not be said that the instruction was carried out under any threat; and, it is not oven to a teacher 891 to insist that the Governing Body should not carry out the instruction.
[897 B H] Messrs Raman and Raman vs The State of Madras, [1959] Supp.2.
S.C.R. 227, referred to,


judgement:
Appeal No. 78 of 1952.
Appeal from the Judgment and Order dated the 17th January, 1951, of the High Court of Judicature at Calcutta (Harries C.J. and Banerjee J.) in its Special Jurisdiction (Income tax) in Income tax Reference No. 50 of 1950.
C.K. Daphtary, Solicitor General for India (G. N. Joshi, with him) for the appellant, 26 190 N. C. Chatterjee (section C. Majumdar, with him) for the respondent.
October 8.
The Judgment of the Court was delivered by DAS J.
This is an appeal from the judgment and order of a Bench of the Calcutta High Court delivered on a reference made by the Income tax Appellate Tribunal under section 21 of the Excess Profits Tax Act, 1940, read with section 66(1) of the Indian Income tax Act, whereby the High Court answered in the affirmative the question of law referred to it.
The question referred was: "Whether in the facts and circumstances of these cases, the Income tax Appellate Tribunal was right in holding that the directors of the respondent company had a controlling interest in it as contemplated by section 2 (21) of the Excess Profits Tax Act." The controversy arose between the parties during proceedings for assessment of excess profits tax for five chargeable accounting periods ending on the 31st December of each of the years 1939 to 1943.
The relevant facts which are not in dispute are these: The respondent company is a company incorporated in what was then British India having a capital of Rs. 3,600,000 divided into 360,000 shares of Rs. 10 each.
The Aluminium Limited, a company incorporated in Canada, held 359,790 shares in the chargeable accounting periods ending on December31, 1939, and December 31, 1940, and 359,600 shares in the chargeable accounting periods ending on December 31, 1941, December 31, 1942, and December 31, 1943.
In exercise of the power given to it by article 105 of the articles of association of the respondent company, the Aluminium Ltd. appointed three permanent directors on the board of directors of the respondent company.
Two of these directors eventually retired and only one, namely, Mr. L. G. Bash continued to be a director of the respondent company nominated by the Aluminium Ltd. Mr. L. G. Bash and the other directors had between them during the chargeable 191 accounting periods ending on December 31, 1939, and December 31, 1940, only 210 shares and in the chargeable accounting periods ending on December 31, 1941, December 31, 1942, and December 31, 1943, 400 shares, Mr. L. G. Bash not having a single share during these last mentioned chargeable accounting periods.
By a resolution passed by the directors of the Aluminium Ltd., Mr. L. G. Bash was appointed to vote and/or from time to time to appoint a special or general proxy to vote for and on behalf of the Aluminium Ltd. in respect of the shares held by it in the respondent company at all ordinary or extraordinary general meetings of the shareholders of the respondent company.
Article 90 of the articles of association of the respondent company provides: "90.
Where a company registered under the provisions of the Indian Companies Act or not is a member of this company a person duly appointed to represent such company at a meeting of this company in accordance with the provisions of section 80 of the Indian Companies Act, 1913, shall not be deemed to be a proxy but shall be entitled to vote for such company on a show of hands and to exercise the same power on behalf of the company which he represents as if he were an individual member of this company including the power to appoint a proxy whether special or general and the production at the meeting of a company of such resolution appointing such representative duly signed by one director of such company and by the secretary (if any) and certified by them or him as being a true copy of the resolution shall on production at the meeting be accepted by this company as sufficient evidence of the validity of his appointment." Mr. L. G. Bash has at all material times been exercising the powers conferred by the above article as the representative of the Aluminium Ltd. The claim of the respondent company was that it should be regarded as a company the directors whereof had a controlling interest therein, inasmuch as Mr. L. G. Bash, one of the directors, had the I authority to exercise the voting power of the Aluminium Ltd. and, 192 as such, could control the affairs of the respondent company and that in computing the standard profits the statutory percentage should be taken at 10 per cent.
per annum and not at 8 per cent per annum.
This contention was rejected by the Excess Profits Tax Officer.
On appeal by the respondent company the Appellate Assistant Commissioner of Excess Profits Tax upheld the decision of the Excess Profits Tax Officer.
The respondent company thereupon appealed to the Incometax Appellate Tribunal "which reversed the decision of the Appellate Assistant Commissioner observing that in view of the power of attorney that was given to Mr. L. G. Bash by the Aluminium Ltd. there was no room for doubt that the respondent company, which was then the appellant before the Tribunal, was a director controlled company.
On the application of the Commissioner of Income tax, the Appellate Tribunal referred the question of law herein before set out.
By its judgment dated the 11th January, 1951, the High Court of Calcutta has answered the question in the affirmative.
The Commissioner of Excess Profits Tax, West Bengal, has now come up on appeal to this court with a certificate under section 66 A (2) of the Indian Income tax Act.
In common parlance a person is said to have "a controlling interest" in a company when such a person acquires, by purchase or otherwise, the majority of the vote carrying shares in that company, for the control of the company resides in the voting powers of its shareholders.
In this sense, the directors of a company may well be regarded as having "a controlling interest" in the company when they hold and are entered in the share register as holders of the majority of the shares which, under the articles of association of the company, carry the right to vote.
[See Glasgow Expanded Metal Co., Ltd. vs Commissioners of Inland Revenue (1) and Commissioners of Inland Revenue vs B. W. Noble(2)].
It is not, however, necessary that in order to have "a Controlling interest" the person or persons who hold the majority of the votecarrying shares must have a beneficial interest in the (1) (2) 193 shares held by them.
These persons may hold the shares as trustees and may even be accountable to their beneficiaries and may be brought to book for exercising their votes in breach of trust, nevertheless, as between them as shareholders and the company, they are the shareholders, and as such, have "a controlling interest" in the company.
[See Inland Revenue Commissioners vs J. Bibby & Sons Ltd.(1) and Commissioner of Income tax vs Bipin Silk Mills Ltd. (2)].
According to the facts found in the statement of the case the directors of the respondent company do not themselves hold the majority of shares which, on the contrary, are registered in the name of the Aluminium Ltd. and, therefore, according to the principles discussed above, they cannot be said to have "a controlling interest" in the respondent company.
Learned counsel for the respondent company, however, contends, on the analogy of the reasonings adopted by the House of Lords in British American Tobacco Co. Ltd. vs Commissioners of Inland Revenue(3) that although Mr. L. G. Bash does not hold the majority of shares and has no beneficial interest in the shares held by the Aluminium Ltd. in the respondent company and although he may be bound to cast the votes according to the directions of his principals, the Aluminium Ltd., and may be answerable to the latter if he acts in breach of his duty, nevertheless, as long as his authority is not revoked, as far as the respondent company is concerned, tile, majority of its vote carrying shares are subject, directly or indirectly, to his will and ordering and, therefore, the directors of the respondent company in fact control its affairs at general meetings and as such have " a controlling interest " therein, no matter by what machinery or means that result has been effected.
This line of argument found favour with the Appellate Tribunal and the High Court.
We are unable, with all respect, to accept this argument as sound, for this argument appears to us to oversimplify the position.
Assuming, but without, expressing any final opinion as (1) [1946] 14 I.T.R. (Suppl.) 7; [1945] I All E.R. 667; , (2) ; (3) ; 11 I.T.R. (Suppl.) 29; , 194 to, the correctness of the decision in the last mentioned case, we have no doubt that the analogy is inapt, for the principle of that decision can have no application to the case before us.
In the case of directors, who hold the majority of shares as trustees they, so far as the company is concerned, are the registered shareholders and the right to vote is vested in them, although as between them and their beneficiaries the beneficial interest is vested in the latter.
They are the registered holders of the shares and the votes they cast are their own votes.
That case is entirely different from the case of directors who are only the agents of the holders of the majority of shares.
When a shareholder holding the majority of shares authorises an agent to vote for him in respect of the shares so held by him, the agent acquires no interest, legal or beneficial, in the shares.
The title in the shares remains vested in the shareholder.
The shareholder may revoke the authority of the agent at any time.
In spite of the appointment of the agent the shareholder may himself appear at the meeting and cast his votes personally.
Therefore, the shares being always subject to his will and ordering, the controlling interest which the holder of the majority of shares has never passes to the agent.
Let us take the facts of the present case.
Under article 90, when Mr. L.G. Bash as agent of the Aluminium Ltd. attends a general meeting of the respondent company he has to produce the resolution of his principals authorising him to cast the votes of his principals.
The votes he casts are not his votes but are the votes of the Aluminium Ltd. In such a situation, in the eye of the law, the controlling interest remains vested in the Aluminium Ltd. and is at no time vested in Mr. L. G. Bash.
The shares in question which give the controlling interest are neither held by Mr. L. G. Bash nor are they subject, directly or indirectly, to his will and ordering, and, therefore, he cannot, applying either of the tests mentioned above, be said to have a controlling interest.
The decision of the Court of Appeal in Commissioners of Inland Revenue vs Jamed Hodgkinson (Salford) Ltd.(1) (1) 195 appears to us to be apposite.
It is unfortunate that the last mentioned case was not brought to the notice of the High Court before the judgment under appeal was delivered.
Dissent has been expressed in the judgment under appeal from the recent decision of the Bombay High Court in New Shorrock Spinning and Manufacturing Co. Ltd. vs Commissioner of Income tax, Bombay(1).
The facts of that case are entirely different from the facts of the case before us and that decision has no manner of application to the present case.
It is, therefore, unnecessary for us to discuss or express any opinion as to whether the observations to be found in the judgment in that case are or are not well founded.
For reasons stated above, we accept this appeal and hold that the answer to the question referred by the Appellate Tribunal to the High Court should be in the negative.
The respondent company must pay the costs of the appellant in this court as well as in the High Court.
Appeal allowed.

summary/full:
Ordinarily a company will be a, "company, the directors whereof have a controlling interest therein" for the purposes of the Excess Profits Tax Act, 1940, only if the directors thereof hold, and are entered in the share register as holders of, a majority of the vote carrying shares of the company.
It is not necessary that they must have a beneficial interest in such shares, but the mere fact that one of the directors of the company has been authorised by another company which held a majority of shares in the former company, to vote on its behalf in respect of the shares held by it, will not make the former company a director controlled company.
Glasgow Expanded Metal Co. Ltd. vs Commissioners of Inland Revenue , Commissioners of Inland Revenue vs B. W. Noble , Inland Revenue commissioners V. ,T. Bibby and Sons Ltd. (14 I.T.R. Suppl 7, , Commissioner of Income tax vs Bipin, Silk Mills Ltd. and Commissioners of Inland Revenue vs Hodgkinson (Salford) Ltd. relied on.
British American Tobacco Co. Ltd. vs Commissioners of Inland Revenue ([1943] A.C. 335) and New Shorrock Spinning and Manufacturing Co. Ltd. vs Commissioner of Incometax, Bombay distinguished.