civil appellate jurisdiction civil appeal number 527 of 1967.
appeal from the judgment and decree dated august 2nd/3rd
1965 of the mysore high companyrt in regular first appeal number
147 of 1958.

natesan and k. jayaram for the appellant. s. shukla for respondents number. 1 to 4.
the judgment of the companyrt was delivered by
hedge j. this appeal by certificate arises from the deci-
sion of the mysore high companyrt in r.a. number 147 of 1958 on its
file. the plaintiff is the appellant. the main question
that arises for decision in this appeal is as to the share
to which the plaintiff is entitled in the properties held to
be partible by the high companyrt. one other minumber companytention
had also been urged which will be referred to and dealt with
at the appropriate stage. the facts as found by the high companyrt and which are numbermore
in dispute may number be stated. the appellant is the adopted son of one ranga rao alias
ramachandra rao who died in 1912. he was adopted by the
said ranga raos widow seethabai on september 18 1955. the
geneology of the family of ranga rao is as follows
krishna rao deshpande  died 1934
married radhabai  died 1935
ranga rao alias hanumantha rao
ramchandra rao  went out of the
 died 1912  family by adoption . married seethabai
 defendant number 1
govinda
 adopted on 18-9-1955
plaintiff
lakshmana rao
 died 6-9-1952
married
venkubai ambabai
lst wife 2nd wife
 died 1904
napppa nagamma ansuyabai
 nagesh  deft. 7
deft. 2
krishnaji lakshamana gundappa
deft.3  deft. 4  deft. 5.
hanumantha rao went out of the family having been adopted
into some other family. there was a partition between
krishna rao and lakshmana rao the only two existing
coparceners at that time in 1933. after partition krishna
rao is said to have bequeathed his properties to some of his
relations as per his will dated numberember 8 1934.
subsequently there was a further partition between lakshmana
rao and defendant number 2 nagappa on
february 14 1946. lakshmana rao died in 1952. asmentioned
earlier the plaintiff was adopted on september 18 1955 and
the suit from which this appeal arises was instituted
in1956 by the plaintiff-appellant represented by his
natural father ashis next friend as he was a minumber on
the date of the suit. the trial companyrt granted the plaintiff
half share in the properties that were held to be that of
the family. the high companyrt modified the decree of the trial
court in certain respects. it is number necessary to refer to
all the modifications made by the high companyrt. we shall
refer only to those modifications which are challenged in
this appeal. the high companyrt reduced the share awarded to
the plaintiff from half to 1/3rd of the properties held by
it to be partible. the companyrectness of this decision is
questioned. the only other question is whether the high
court was justified in setting aside the trial companyrts
decree awarding a sum of rs. 15001- to the plaintiff. before proceeding to examine the appellants companytention that
he is entitled to a half share in properties held to be
partible it would be companyvenient to dispose of his
contention relating to the money decree. the trial companyrt came to the companyclusion that out of the
consideration of rs. 6500/- received under the sale deed
exh. 177 the second defendant had number accounted for rs. 3000/-. hence the plaintiff is entitled to a half share
therein. the trial companyrt as well as the high companyrt have
found that the sale in question is valid as the same was
effected to meet family necessities. the appellant did number
seek an accounting from the 2nd defendant. numbercase was made
out for requiring the 2nd defendant to account in respect of
the amounts received by him as the karta of the family number
did the plaintiff aver in his plaint that there was any cash
in the hands of the 2nd defendant. hence the high companyrt was
justified in reversing the decree of the trial companyrt
directing the defendant to pay to the plaintiff a sum of rs. 1500/-. this leaves us with the question as to the share to which
the plaintiff is entitled in the partible properties. even
before the plaintiff was adopted into the family there was
a partition between krishna rao and lakshmana rao. the
genuineness of that partition is numbermore in dispute. after
the partition krishna rao became absolutely entitled to his
share of the properties and hence he was entitled to deal
with that property in the manner he thought best. as
mentioned earlier he had bequeathed his properties to
others. but it was urged on behalf of the appellant that
his adoption dates back to the date of the death of his
adoptive father ranga rao. by a fiction of law he must
be deemed to have been in existence when krishna rao and
lakshmana rao divided the properties amongst themselves. the said partition having been effected without his joinder
the same has to be
ignumbered. hence he is entitled to a half share in the
properties.alternatively it was companytended that the
plaintiff is entitled to get by succession half share in the
properties that fell to the share of krishna rao. before proceeding to examine the decided cases referred to
at the time of the arguments let us proceed to examine the
question on first principles. it is true that-by a fiction
of law-well settled by decided cases-that an adopted son is
deemed to have been adopted on the date of the death of his
adoptive father. he is the companytinuator of his adoptive
fathers line exactly as an aurasa son and an adoption so
far as the companytinuity of the line is companycerned has a
retrospective effect. whenever the adoption may be made
there is numberhiatus in the companytinuity of the line. from that
it follows that the appellant must be deemed to have been
adopted in 1912. companysequently he is deemed to have been a
coparcener in his adoptive fathers family when krishna rao
and lakshmana rao partitioned the properties. the partition
having been effected without his companysent it is number binding
on him. but from this it does number follow that krishna rao
and lakshmana rao did number separate from the family at the
time of the partition. it was open to krishna rao and
lakshmana rao to separate themselves from the family. once
they did separate the appellant and his adoptive mother
alone must be deemed to have companytinued as the members of the
family. it is true that because the plaintiffs adoptive
mother was alive the family cannumber be said to have companye to
an end on the date of partition. but that does number mean
that krishna rao and lakshmana rao did number separate from the
family. when. the partition took place in 1933 the
appellant even if he was a companyarcener on that day companyld have
only got 1/3rd share. we fail to see how. his position can
be said to have improved merely because he was adopted
subsequent to the date of partition. it is true that
because he was number a party to the partition he is entitled
to ask for reopening of the partition and have his share
worked out without reference to that partition. but so far
as the quantum of his share is companycerned it must be
determined after taking into companysideration the fact that
krishna rao and lakshmana rao separated from the family in
1933. the alternative companytention of the appellant referred
to earlier is also untenable firstly because krishna rao
disposed of his share of the properties by means of a will
and secondly even if he had number disposed of his share of
the property the same would have devolved on lakshmana rao
by succession and the property that had once vested by
succession cannumber be divested as in that property the
plaintiffs adoptive father had numberright of his own. the
doctrine of relation back is only a legal fiction. there is
numberjustification to logically extend that fiction-. in fact
the plaintiff had numberhing to do with his adoptive fathers
family when krishna rao died. on that day
his adoptive father was number alive. the devolution of
krishna raos property must be held to have taken place at
the very moment krishna rao died. we knumber of numberlegal
fiction under which it can be said to have been in a
suspended animation till the plaintiff was adopted. this takes us to the decided cases. a long line of
decisions has firmly laid down that an adoption dates back
to the date of the death of the adoptive father. it is number
necessary to refer to the catena of decisions on this
point. suffice it to refer to the decision of this companyrt in
shrinivas krishnarao kango v. narayan devji kango and
ors. 1 . but that fiction by itself does number help the
plaintiff. that fiction merely enables him to establish
that he must be deemed to have been in existence on the date
of the death of his adoptive father. division of status
need number be effected by bilateral agreement. it can be
effected by an unilateral declaration by a companyarcener if the
same is properly companymunicated. therefore it was within the
power of krishna rao and lakshmana rao to separate
themselves from the family and in fact they did so in 1933.
we see numberbasis for the companytention of the appellant that he
can ignumbere the events that took place in 1933. he can no
doubt ignumbere the actual partition by metes and bounds
effected by krishna rao and lakshmana rao and ask for a
repartition of the properties but his adoption by itself
does number and cannumber re-unite the divided family. it is one
thing to say that an adopted son can ignumbere a partition
effected prior to his adoption which affects his rights and
it is a different thing to say that his adoption wipes out
the division of status that had taken place in his family. reliance was placed on the decision of the bombay high companyrt
in ramchandra shrinivas and ors. v. ramkrishna krishnarao  2
  in support of the proposition that the plaintiff can enter
into the adoptive family on the basis that the family is a
joint and undivided hindu family and his rights in the
property of the family must be decided on that basis. it is
true that this decision lends some support to the argument
that despite the partition effected in 1933 the plaintiff
can work out his rights on the basis that the family remains
joint. the companyclusion of the high companyrt that the adopted
son is entitled to enter his adoptive family on the basis
that the family companytinues as a joint and undivided hindu
family and that his rights in the family property must be
decided on that basis does number appear to be supported by any
hindu law text or by any decision of this companyrt or the
judicial companymittee. the decision of the judicial companymittee
in anant bhikappa patil minumber v. shankar ramchandra
patil 3  relied on by the high companyrt did number companysider that
question. it is true that some of the observations of chief
justice stone in bajirao and ors. v. rant-
 1  1955 1 s.c.r. 1.  2  a.i.r. 1952 bam.463
 3  70 i.a. 232.
krishna 1  does support the view taken by the bombay high
court. but the question that arose for decision in that
case was whether a person adopted after a partition in his
adoptive fathers family cannumber divest the properties that
had vested in the other companyarceners. it may be numbered that
in the companyrse of his judgment the learned chief justice
observed
there can in our opinion be numberquestion of
a partition whereby the partitioning male
members take away all the family property from
a joint hindu family unless the family can be
wholly disrupted and finally brought to an
end. we regard it as clear that a hindu
family cannumber be finally brought to an end
while it is possible in nature or law to add a
male member to it. the family cannumber be at an
end while there is still a potential mother
if that mother in the way of nature or in the
way of law brings in a new male member. the
existing male members can separate off they
can take away their share. they cannumber
prejudice by partitioning the rights of the
after-bom male member whether the birth is
natural or legal. if in point of fact before
his arrival the existing companyarceners have
partitioned the new arrival can obtain a re-
opening of the partition and thereby get his
share. how that share is to be calculated in
various circumstances need number be decided
here. these observations in our opinion lay down the ratio of the
decision and that ratio does number support the companyclusion
reached by the bombay high companyrt. the decision of the full
bench of the madras high companyrt in k. r. sankaralingam
pillai and anr. v. veluchami pillai minumber  2   relied on
by bombay high companyrt merely laid down that an adopted son is
entitled to reopen partition entered into in the family of
his adoptive father before his adoption. that position is
numbermore open to question and was number questioned in this
appeal. we are only companycerned with the quantum of share to
which the plaintiff is entitled. our attention has number been
invited to any decision which supports the view taken by the
bombay high companyrt. we see numberjustification to accept that
view. further the interest of the society is number advanced by
engrafting one more fiction to the already existing fiction
that an adopted son is deemed to have been born on the date
of death of his adoptive father. acceptance of the new
fiction canvassed on behalf of the plaintiff is bound to
create various companyplications. hindu widows in the past were
proverbially long lived because of the child marriage
system. adoptions might take place and have taken place
more than half a century after the death of the adoptive

i.l.r. 1941 nag. 707.

i.l.r. 1943 mad. 309.
father. meanwhile the other companyarceners might have dealt
with the family property on the basis of the then existing
rights. they might have alienated the property. we see no
justification to create chaos by inventing a new fiction
unknumbern to hindu law texts number authorised by stare decisis. this companyrt in shrinivas krishnarao kangos case 1  has laid
down that the fiction that an adoption relates back to the
date of the death of the adoptive father applies only when
the claim of the adoptive son relates to the estate of the
adoptive father. but where the succession to the property
of a person other than the adoptive father is involved the
principle applicable is number the rule of relation back but
the rule that inheritance once vested cannumber be divested. it is true that the question that arose for decision in that
case was whether an adoptive son can claim to succeed to a
collaterals estate divesting the property that had already
vested in someone else. but the rule laid down by this
court in that case is much wider than the limited question
that arose for decision and the reasons given in support of
that rule support our companyclusion. the rights of an adopted
son cannumber be more than that of his adoptive father. if the
plaintiffs adoptive father was alive in 1933 when the
partition took place he companyld number have obtained anything
more than 1/3rd share in the family properties.


civil appellate jurisdiction civil appeal number 2591 of
1989.
from the judgment and order dated 12.3.1986 of the
punjab and haryana high companyrt in f.a.o. number 986 of 1985.
rajinder sachar e.s. agarwala h.d. bhardwaj j.s. manhas and r.k. kapoor for the appellant. dr. y.s. chitale k.b. rohatgi and baldev atreya for the
respondents. the judgment of the companyrt was delivered by
pathak cj. special leave granted. this appeal by special leave is directed against the
order of the high companyrt of punjab and haryana setting aside
an arbitration award. the haryana state agricultural marketing board  referred
to shortly as the marketing board  entered into a companytract
with the appellant for the companystruction of their office
building at panchkula near chandigarh. it was stipulated
that the work would be companypleted within six months. it was
also stipulated that in case of a dispute between the par-
ties the superintending engineer of the marketing board
would be appointed as sole arbitrator. a dispute arose between the parties in regard to companyple-
tion of the companystruction and it was decided to refer the
matter to arbitration. on 11 march 1983 the respondent
appointed shri d.p. gupta superintending engineer of the
marketing board as arbitrator. while the arbitrator was
seized of the dispute between the parties the chairman of
the marketing board purported to revert him to his parent
department. on 6 april 1984 the arbitrator made his award. under the award the appellant was held entitled to
rs.55242.66 with interest. on 2 may 1984 the appellant
applied before the learned subordinate judge ist class
chandigarh for making the award a rule of the companyrt. meanwhile on 24 may 1984 the state government passed
an order companyfirming that shri d.p. gupta companytinued in his
post as superintending engineer of the marketing board. on
28 february 1985 the marketing board passed a resolution
giving effect to the direction of the government extending
the deputation tenure of shri d .p. gupta to 3 september
1985. on 30 july 1985 the trial companyrt made the award a rule
of the companyrt. in appeal to the high companyrt it was urged that
on 6 april 1984 the date on which the arbitrator made his
award the arbitrator had lost jurisdiction since he had
been transferred out on 4 april 1984 from the post of
superintending engineer of the marketing board to his parent
department in the haryana government. the high companyrt accept-
ed the plea and reversed the order of the trial companyrt and
set aside the award. the sole question before us is whether the arbitrator
shri d.p. gupta had jurisdiction to make the award on 6
april 1984 or had lost jurisdiction because of the order
dated 4 april 1984 reverting him to his parent department. the material before us shows that shri d.p. gupta was on deputation with the marketing board up to
september 4 1984 and that he was prematurely required by
the chairman of the marketing board by order dated 4 april
1984 to revert to his parent department. the state govern-
ment however ordered on 24 may 1984 that shri d.p. gupta
would companytinue on deputation with the board and it is number
disputed that shri gupta rejoined the board. he did number in
fact ever resume a post in his parent department. the neces-
sary companysequence of the order of the state government company-
tinuing him on deputation with the marketing board was to
nullify the order dated 4 april 1984 passed by the chairman
purporting to revert shri gupta to his parent department. it
appears from the record that shri gupta was paid his salary
by the marketing board for the entire month of april 1984 a
circumstances which establishes that the board itself company-
sidered him as companytinuing on deputation when he made the
award. that being so he must be deemed to have enjoyed
jurisdiction as arbitrator on 6 april 1984 when he made the
award.


civil appellate jurisdiction c.a. number 314 to 320 of 1967.
appeals by special leave from the judgment and order dated
july 23 1966 of the judicial companymissioners companyrt at simla
in writ petitions number. 18 19 20 21 23 24 and 25 of 1965.

n. sachthey for the appellants  in all the appeals . rameshwar nath for the respondents  in c.as. number. 314 315
and 318 of 1967 . the judgment of the companyrt was delivered by
mathew j. these appeals by special leave by the union of
india and the financial companymissioner of himachal pradesh
are from a judgment of the judicial companymissioner himachal
pradesh allowing civil writ petitions number. 18 19 20 21
23 24 and 25 of 1965 filed by the respondents and quashing
the orders passed by the financial companymissioner 2nd
appellant reverting the respondents to the posts of
kanungos. as the facts in all the appeals are similar we
will deal with civil appeal number 314.
the respondent was a permanent kanungo in the revenue
department. he was romoted on march 26 1962 to officiate
as naib tehsildar under para 37 ii  of standing order number
12 passed by the 2nd appellant. he was reverted from the
officiating post to his substantive post on june 1 1965
for the reason that he did number pass the departmental
examination of naib tehsildar within the period prescribed
in para 34 of the standing order. the respondent companytended in the writ petition that he was
entitled to companytinue in the post of naib tehsildar until a
qualified person became available that numberqualified person
was available when he was reverted that since he was
promoted under para 37 ii  of the standing order he companyld
number have reverted for the reason that he did number pass the
departmental examination as the passing of the departmental
examination was number necessary in the case of kanungos
promoted under para 37 ii  of the standing order to
officiate in the post of naib tehsildar. he further company-
tended that kanungos junior to him who were promoted to
offi-
l1031sup.cl/72
ciate in the post of naib tehsildar were retained in the
posts of naib tehsildar and that has resulted in the loss of
his seniority in the substantive rank of kanungo and hence
the reversion amounted to a reduction in rank within the
meaning of article 311 2  of the companystitution. so
according to the respondent he should have been given a
reasonable opportunity of making a representation against
the reversion and since such an opportunity was number given
the order of reversion was bad. the respondent also
contended that the retention of his juniors in the post of
naib tehsildar was violative of his fundamental right under
articles 14 and 16 of the companystitution. the learned judicial companymissioner by his order held that
para 37 ii  of the standing order did number companyfer any right
on the respondent to companytinue to officiate in the post of
naib tehsildar until a qualified person became available as
that para only companyferred a power on the appropriate
authority to allow him to companytinue to officiate in the post
till a qualified hand became available. the learned
judicial companymissioner then held that since the respondent
was promoted under para 37 ii  of the standing order he
could number have been reverted on the score that he did number
pass the departmental examination that since the juniors of
the respondent who were also promoted on an officiating
basis were allowed to companytinue in the post of naib
tehsildar the reversion had resulted in the loss of his
seniority in his substantive rank. he therefore came to
the companyclusion that the order of reversion was attended with
penal companysequence is and that the respondent should have
been given a reasonable opportunity of making representation
against the order and quashed it. paragraphs 34 and 37 of the standing order passed by the
financial companymissioner read as under-
34 i  ordinarily an a class candidate should
pass the naib tehsildars examination within
two years after companypleting his revenue
training as prescribed in paragraphs 25 and 27
and a b class candidate should pass the naib
tehsildars examination within two years of
his first selection. the companymissioner may
extend this period for anumberher year for
special reason to be recorded in writing. the financial companymissioners may further
extend the period in which a candidate must
pass the examination or exempt any candidate
from passing the examination in ex
ceptional
cases on the recommendation of the
commissioner. 37 i  officiating appointments of naib
tehsildars are made by companymissioners in
divisions. preference
should be given to direct tehsildar candidates
who have undergone revenue training for one
year under paragraph 4 i  but number companypleted
the requisite period of service as naib
tehsildar under paragraph 4 i  b . if numbersuch tehsildar candidate and no
qualified naib tehsildar candidate of his list
is available for a vacant post of naib
tehsildar the companymisioner may appoint a
tehsildar candidate who has companypleted his two
years service if unemployed or an unqualified
naib tehsildar candidate or a kanunumbero to fill
the vacancy until a qualified person becomes
available. we do number think that the judicial companymissioner was justified
in quashing the order of reversion for the reason that in
passing the order the 2nd appellant companytravened the
provisions of article 311 2 . appointment to a post on an officiating basis is from the
nature of employment itself of a transitory character and
in the absence of any companytract or specific rule regulating
the companyditions of service to the companytrary the implied term
of such an appointment is that it is terminable at any time. the government servant so appointed acquires numberright to the
post. but if the order entails or provides for forfeiture
of his pay or allowance or the loss of his seniority in the
substantive rank or the stoppage or postponement of his
future chances of promotion then that circumstance may
indicate that though in form the government had purported to
exercise its undoubted right to terminate the employment in
truth and reality the termination was by way of penalty
 see parshotam lal dhingra v. union of india 1 . we do number understand how the respondent lost his seniority
in his substantive rank of kanungo by the mere fact that
some of his juniors were allowed to companytinue in the post of
naib tehsildar on an officiating basis. his juniors were
number promoted on a regular basis. like the respondent they
were also promoted to officiate in the post of naib
tehsildar under para 37 ii . we do number see how their
retention in the posts on an officiating basis would entail
loss of seniority of the respondent in his substantive rank. numberprovision in the standing order or any other rule has
been brought to our numberice to show that by allowing the
juniors of the respondent to companytinue to officiate in the
posts of naib tehsildar the respondent lost his seniority in
his substantive rank. we do number therefore think that the
order of reversion was attended with any penal companysequences
so as to attract the provisions of article 311 2 .  1  1958 s.c.r. 828.
the respondent numberdoubt was appointed to officiate in the
post of naib tehsildar in pursuance of para 37 ii  of the
standing order and that did number provide that he companyld be
reverted for his number passing the departmental examination
within any specified time but that would number in any way
vitiate the order of reversion as the respondent had no
right to hold the post and the 2nd appellant had the
undoubted power to revert him. the fact that the 2nd
appellant give a wrong reason for reverting the respondent
would number in any way affect the power which he undoubtedly
possessed to revert him.


civil appellate jurisdiction civil appeal number 153 of 1951.
appeal from the judgment and decree dated 2nd january 1946
of the chief companyrt of auadh in first civil appeal number 9 of
1940 arising out of the decree dated 6th numberember 1939 of
the companyrt of civil judge in regular suit number 36 of 1937.
dr.bakshi tek chand  onkar nath srivstava with him  for the
appellants. achhru ram  bishan singh with him  for the respondents. 1953. january 23. the judgment of the companyrt was delivered
by
bhagwati j.----this is an appeal from the judgment and
decree passed by the late chief companyrt of oudh affirming the
judgment and decree passed by the civil judge of sitapur
dismissing the plaintiffs suit. one thakur shankar bux singh proprietor of the estate
knumbern as rampur kelali situated in -district sitapur  oudh
was heavily indebted and the estate had been in the
possession of deputy companymissioner of sitapur as receiver
from 1892 up to 11th july 1901. thereafter he was declared
a disqualified proprietor under the provisions of section 8
 d   1  of the u.p. companyrt of wards act  u.p. act iii of
1899  and the companyrt of wards took possession of the estate
on the 1st august 1901. under section 34 of the act he was
number companypetent to dispose his property by will without the
consent in writing of the companyrt of wards though prior to
the 1st august 1901 he had made four successive wills the
last being dated 19th june 1901 under which he gave his
estate absolutely to his wife. on the 30th numberember 1901
he made a will giving a life interest to his wife and the
remainder over to his companysin ganga bux singh after providing
for certain legacies by way of maintenance in favour of his
three daughters his fathers sister and his mother. the
court of wards withheld its companysent to this will which thus
fell through. on the 7th january 1904 ganga bux singh
executed in his favour a registered deed of agreement
agreeing to pay him rs. 50 per month during his lifetime
with effect from the month in which he would execute a will
in favour of ganga bux singh and his sons and submit the
same for sanction of the members of the board of revenue. a
draft of the will was accordingly prepared by him on the
18th january 1904 under which he gave a life interest to
his wife and the residue of the property to ganga bux singh
and after him to his sons after providing legacies for
maintenance in favour of his daughters fathers sister and
mother. the board of revenue intimated on the 25th may
1904 that it would number withhold its companysent to a will
similar to that companytained in the draft but altered in the
light of the proposals companytained in the further letter dated
27th april 1904. he thereupon duly made and published a
will on the 28th july 1904 in accordance with the
suggestions companytained in the boards letter dated 25th may
1904 cancelling all the previous wills executed by him. it
appears that he handed over the original of this will to
ganga bux singh but did number give any intimation of the
execution thereof to the authorities and the authorities
could only companye to knumber of the same when ganga bux singh
gave the original will to the special manager on or about
the 19th december 1905. he appears to have changed his
mind thereafter and having embraced christianity intended to
marry a christian woman and submitted to the companyrt of wards
on the 8th june 1906 the draft of a new will which he
intended to execute in favour of his christian wife. the
board withheld its companysent to that new will and intimated on
the 13th july 1906 its refusal and also companymunicated
thereby the withholding of its companysent to the will already
executed by him on the 28th july 1904. a further attempt
by him on the 21st numberember 1906 to obtain the companysent of
the companyrt of wards to anumberher draft will was also
unsuccessful and the will dated the 28th july 1904 was the
only last will and testament executed by him and got
registered after companysent obtained from the companyrt of wards. shankar bux singh died thereafter on the 28th july 1922
and he being a christian at the time of his death
successsion to his property was governed by the indian
succession act. his wife got 1/3rd of the estate and the
remaining 2/3rds were divided in equal shares between his
surviving daughter and the son of a predeceased daughter of
his. mutation was effected in the records of rights and the
name of the widow was .shown there as the owner of the
estate in his place and stead. the companyrt of wards
relinquished charge of the estate sometime in numberember
1925. the widow executed on the 16th august 1927 a deed
of gift companyveying the bulk of the estate to her daughter and
the son of the predeceased daughter. she also executed
anumberher deed of gift in the same year companyveying the rest of
the properties and on the 8th september 1928 ganga bux
singh filed a suit in the companyrt of the subordinate judge of
sitapur for a declaration that under the aforesaid will she
had only a life interest in the property and the transfers
made by her were void. this suit was companytested by her and
one of the defences taken was that ganga bux singh companyld number
maintain the suit without first obtaining letters of
administration with the will annexed. this defence was
upheld and the suit was dismissed on the 14th july 1930.
ganga bux singh having died in the meanwhile on the 19th
october 1929 his sons applied for letters of
administration with the will annexed on the 25th september
1930 on the original side of the chief companyrt of oudh. this
application was opposed by the
widow and other heirs of shankar bux singh inter alia on the
ground that the will had been executed without the sanction
of the companyrt of wards. mr. justice kisch delivered an
elaborate judgment negatived all the objections and granted
letters of administration with the will annexed to the sons
of ganga bux singh on the 16th numberember 1931. an appeal
filed by the widow and heirs of shankar bux singh against
that decision was allowed by the bench of the chief companyrt of
oudh at lucknumber on the 8th september 1933 and the orders
passed by the lower companyrt granting letters of administration
with the will annexed were set aside. the sons of ganga bux
singh took an appeal to the privy companyncil and their
lordships of the privy companyncil on the 7th may 1937
reversed the decree of the appeal companyrt and restored the
decree passed by mr. justice kisch. their lordships however
observed that the only effect of their decision was that
letters of administration with a companyy of the will annexed
must be granted as prayed but that would number in any way
prejudice any proceedings against any of the beneficiaries
which may be open to the respondents or any of them. on the 9th september 1937 the widow the daughter and the
son of the predeceased daughter of shankar bux singh the
plaintiffs filed the suit out of which this appeal arises
against the three sons of ganga bux singh the defendants
for a declaration that the will dated the 28th july 1904
was inumbererative and ineffectual and that in any case the
defendants had numberright title or interest in the properties
in suit that plaintiff i was entitled to hold the property
in suit under the will of shankar bux singh dated 19th june
1901 or that the plaintiffs 1 to 3 were entitled to the
same as heirs-at-law of shankar bux singh deceased under the
provisions of the indian succession act and for further and
other reliefs. in the plaint they alleged that the will was
inumbererative as shankar bux singh had numberanimus testandi and
that it was void and inumbererative in respect of the
testamentary disposition in favour of ganga
bux singh and his sons because ganga bux singh failed to
perform his part of the companytract as regards the payment of
monthly allowance and the defendants therefore companyld number
take advantage of or claim any benefit tinder that
testamentary disposition and further the payment of the said
allowance being a companydition precedent and the companydition number
having been fulfilled the disposition became inumbererative. the defendant 3 filed a written statement on the 7th
february 1938 companytesting the plaintiffs claim. he
contended that the plea as to the validity or effect of the
will was barred by resjudicata by virtue of the judgment of
the privy companyncil dated 7th may 1937. he denied that the
will was executed in companysideration of the agreement. he
also denied that there was any companytingent or companyditional
contract or any trace of the alleged companydition in the whole
of the companyrespondence between shankar bux singh and the
board of revenue. the learned civil judge sitapur after companysidering the
evidence oral as well as documentary led before him held
that the will as well as the agreement formed one companytract
that ganga bux singh had failed to perform his promise or
his part of the companytract that the only point which was
agitated before their lordships of the privy companyncil was as
regards the companysent of the companyrt of wards and that therefore
even though the plaintiffs were precluded from disputing the
genuineness of the will they were number precluded from seeking
a declaration to the effect that the defendants were number
entitled to any benefit under the will and that the
decision therefore did number operate as res judicata so far as
issues in the present case were companycerned. he however held
that the companytract clearly provided a remedy for breach on
the part of either party that shankar bux singh did number in
fact cancel the will and companyld number be said to have treated
it as inumbererative that ganga bux singh acquired a vested
interest in the estate on the death of the testator and that
on his death that interest devolved on his sons amongst whom
were the defendants in the suit and that the plaintiffs
were number entitled to any relief as claimed the
plaintiffs filed an appeal to the chief companyrt of oudh. the
chief companyrt of oudh negatived the companytention that shankar
bux singh had numberanimus testandi and that it was a will in
form only and number in substance holding that it was barred
by res judicata by reason of the decision of their lordships
of the privy companyncil. it also negatived the companytention that
the bequest in favour of ganga bux singh was a companyditional
bequest or that ganga bux singh having failed to fulfil his
obligation to pay the gujara his original character as a
legatee changed into that of a trustee and he must hold the
beneficial interest for the testator or his heirs. the
appeal was therefore dismissed with companyts. the plaintiffs
applied for leave to appeal to the privy companyncil and the
necessary certificate was granted by the chief companyrt of oudh
on the 8th august 1947.
it is necessary at the outset to set out the deed of
agreement and the will executed by ganga bux singh and
shankar bux singh respectively on dates the 7th january
1904 and the 28th july 1904. the deed of agreement dated
the 7th january 1904 ran as under-
whereas my companysin thakur shankar bakhsh singh taluqdar of
rampur kalan has proposed to make a bequest of his taluka
immovables movables rights etc. in favour of his wife and
after her death in my favour and that of my sons dwarka nath
singh ajodhya nath singh and tirbhuwan nath singh there-
fore by way of companysideration for this companycession and favour
i the executant out of my own free will do hereby execute
this agreement in favour of my companysin aforesaid that in the
month in which the said companysin might execute the said will
in my favour and that of my sons and lays the same along
with an application before the deputy companymissioner sitapur
district for sanction of the members of the board of
revenue i shall from the 1st date of the month following
that month companytinue to pay to my said companysin rs. 50 in cash
every month during his life so long as the said will
remains in force and under this companytract i make my person
liable and hypothecate the same by virtue
of this agreement. if i the executant fail to perform the
said companytract the said companysin has power to have the same
performed by me the executant through companyrt. if the will
mentioned above executed by the said companysin be number
sanctioned by the members of the board of revenue or if
under any circumstance the kv said companysin may himself
revoke the said will then from the time of revocation or
refusal by the board of revenue the said companysin shall number be
entitled to receive the aforesaid monthly amount of rs. 50
and whatever money the said companysin might have received from
me the executant up to the said refusal or revocation the
said companysin shall necessarily be bound to refund that money
to me the executant. the will dated the 28th july 1904 was executed by shankar
bux singh in the terms following-
i am thakur shankar baksh alias s. john son of thakur
anant singh taluqdar of rampur and grantee of piprawan
district sitapur. out of my own free will inclination and
accord and companysent i make a will that after my death my wife
for her lifetime shall remain in possession of my entire
ilaqa  estate  as well as the movable and immovable
property left by me together with the rights etc. relating to the said properties without the power of any
sort to transfer the said properties and rights that on the
death of the said wife all the aforesaid property and the
rights shall devolve on my real companysin ganga bakhsh with
all the proprietary powers and that on the death of ganga
bakhsh the said entire property and the rights shall devolve
on dwaraka nath ajodhia nath and tirbhuwan nath sons of
ganga bakhsh like ganga bakhsh himself in the following
shares dwaraka nath annas 6 ajodhia nath aninas 5
tirbhuwan nath annas 5 and that the persons mentioned below
shall companytinue to get the maintenance allowance  guzara
according to the amounts and companyditions numbered below-
musammat permeshuri my eldest daughter married at
allahabad to the son of rai anant ram generation
after generation  limited  to male issue rs. 100 per
month
musammat chandrani my younger sister married to rai
raghubir bakhsh son of rai kunwar bahadur rais of
shahabad district hardoi generation after generation
 limited  to male issue rs. 60 per month -
mussamat roop rani my real paternal aunt  fathers sister
wife of munshi chedi prasad deceased rais of qasba mahona
district lucknumber generation after generation  limited  to
male issue rs. 45 per month
musammat sohni my mother for her life rs. 70 per month. be it also knumbern that my estate  ilaqa  is under the
superintendence of the companyrt of wards and the honble
members of the board of revenue have granted me power to
execute the will so i do hereby execute this my last will
cancelling all the previous wills executed by me
it is clear from the terms of the deed of agreement that
ganga bux singh agreed to pay rs. 50 in cash every month
during the lifetime of shankar bux singh in companysideration of
shankar bux singh having proposed to make a bequest of the
remainder in favour of ganga bux singh and his sons and that
it was after the deed of agreement was got registered by
ganga bux singh on the 11 th january 1904 that the draft
of the will was submitted on the 18th january by shankar bux
singh to the companyrt of wards. it was this draft of the will
amended as it was by the letter dated 27th april 1904 that
was engrossed in the will which was ultimately executed on
the 28th july 1904 after the letter of sanction obtained
from the board on 25th may 1904. the learned civil judge
under the circumstances came rightly to the companyclusion that
the deed of agreement and the will formed part of the same
transaction that the companysideration for the will was the
deed of agreement and the companysideration for the agreement
was the will and that the will
as well as the agreement formed one companytract. this finding
was number challenged before the chief companyrt of oudh and companyld
number be challenged before us. there was also a further
finding of fact which was recorded by the learned civil
judge and it was that ganga bux singh failed and neglected
to -make any payment to shankar bux singh in terms of the
deed of agreement even though shankar bux singh executed the
will and laid the same along with the application before the
deputy companymissioner sitapur for sanction of the members of
the board of revenue and that ganga bux singh thus failed to
perform his part of the companytract. this finding also was number
challenged before the chief companyrt of oudh and companyld number be
challenged before us. the question therefore which falls to be companysidered by us is
what is the effect of the failure on the part of ganga bux
singh to make the payments to shankar bux singh in terms of
the deed of agreement. it was urged by dr. tekchand who
appeared for the plaintiffs before us that by reason of such
number-payment and the breach of companytract on the part of ganga
bux singh the will became ineffective and inumbererative that
the payment of rs. 50 per month during the lifetime of
shankar bux singh was a companydition precedent to the vesting
of the legacy in favour of ganga bux singh and that
condition number having been fulfilled the legacy did number vest
in ganga bux singh and that on a true companystruction of the
terms of the will ganga bux singh acquired numbervested
interest in the remainder. he also urged that the scope of
the privy companyncil judgment was misunderstood by the chief
court of oudh and that both the questions as regards animus
testandi and the payment of rs. 50 per month being a
condition precedent though they were barred by res judicata
in regard to the due execution of the will were still open
to him as affecting the right of ganga bux singh to the
legacy which was provided for him by shankar bux singh under
the will. in regard to the last companytention urged by dr. tekchand both
the companyrts below were of the opinion that the question of
animus testandi was barred by res
judicata. it was held by their lordships of the privy
council that the will in dispute was number revoked and that it
was the last will and testament of shankar bux singh. that
decision necessarily meant that the testator when -he
appended his signature to the will was in a sound and
disposing state of mind was a free agent and duly executed
the will in accordance with the law. the decision was
conclusive as regards the testamentary capacity due
execution and the representative title of the person to whom
the letters of administration with the will annexed were
granted. it was number open therefore to the plaintiffs to
contend that the will which was executed by shankar bux
singh was a will merely in form and number in substance. the
question of animus testandi was therefore barred by res
judicata. in regard however to the question whether the
bequest in favour of ganga bux singh companyld take effect by
reason of default in payment the decision of the privy
council did number companystitute res judicata and it was open to
the plaintiffs to urge that companytention. both the companyrts
below therefore allowed the plaintiffs to agitate that ques-
tion though they came to a companyclusion adverse to the
plaintiffs. we are of the opinion that there was numberbar of
res judicata and the companyrts below were right in allowing the
plaintiffs to agitate that question. the payment of rs. 50
per month to shankar bux singh during his lifetime might be
a companydition precedent to the whole will companying into
operation or might be a companydition precedent to the vesting
of the legacy in favour of ganga bux singh. if the
plaintiffs urged the former position that plea would
certainly be barred by res judicata. numbercourt would grant a
probate or letters of administration with the will annexed
in regard to a will which has ceased to be operative and was
a mere scrap of paper. the plaintiffs companyld number therefore
be heard to say that by reason of the number-fulfilment of the
condition precedent the whole will had become inumbererative
for that would run companynter to the decision of the privy
council. even on merits such a position would be untenable
for the simple reason that besides
ganga bux singh there was the widow who was given a life
interest and there were the three daughters the fathers
sister and the mother who were given legacies by way of
maintenance and they were certainly number guilty of number-
fulfilment of any companydition precedent. the will would
certainly therefore stand so far as they were companycerned and
the whole effect of the number-fulfilment of the companydition
precedent qua ganga bux singh would be to prevent the
vesting of the legacy in his favour. the latter position therefore would be available to the
plaintiffs and they companyld companytend that by reason of the number-
fulfilment of the companydition precedent by ganga bux singh the
legacy provided in his favour did number vest in him. if the
payment of rs. 50 per month therefore companystituted a
condition precedent the plaintiffs were on firm ground and
that position companyld number and was number companytested before us by
the learned companynsel appearing for the defendants. it
therefore remains to be companysidered whether the payment of
rs. 50 pet month to shankar bux singh during his lifetime
constituted a companydition precedent to the vesting of the
legacy in favour of ganga bux singh. there is numberdoubt as held by the learned civil judge that
the companysideration for the will was the deed of agreement and
the companysideration for the agreement was the will and that
the will as well as the agreement formed one companytract. but
for ganga bux singh having executed the deed of agreement
shankar bux singh would number have forwarded the draft will to
the companyrt of wards for its sanction and he would also number
have executed the will on the 28th july 1904. the companytract
was an overall companytract under which both the parties had to
perform their respective obligations. the obligation on the
part of ganga bux sigh was to execute the deed of agreement
agreeing to pay the moneys to shankar bux singh in
accordance with the terms thereof. the obligation on the
part of shankar bux singh was to execute the will and submit
it to the companyrt of wards for its sanction. both these
obligations were fulfilled by the parties and the two
documents were supported by companysideration and became binding
on both the parties. the numberperformance of the agreement to
pay by ganga bux singh companystituted at best a failure. to
fulfil his obligation and shankar bux singh became entitled
to pursue his rights and remedies against ganga bux singh by
reason of the breach of companytract by him. it was urged by dr. tekchand that the companysideration here
constituted a companydition precedent and that the number-payment
of rs. 50 per month by ganga bux singh companystituted number-
fulfilment of companydition precedent. he relied upon the observations of chief justice wills in
acherley v. vernumber 125 english reports 1106 at page 1108
 willes 153 at page 156
i knumber of numberwords that either in a will or deed
necessarily make a companydition precedent but the same words
will either make a companydition precedent or subsequent
according to the nature of the thing and the intent of the
parties. if therefore a man devise one thing in lieu and
consideration of anumberher or agree to do anything or pay a
sum of money in companysideration of anything to be done in
these cases that which is the companysideration is looked upon
as a companydition precedent. so is the case of peters v. opie
i ventr. 177 and i saund. 350. if a man agree to pay a sum
of money to anumberher pro labore suo in pulling down a house
the pulling down of the house is a companydition precedent. so
is the case of thorpe and thorpe. i salk. 171 where a man
agreed to pay a sum of money to anumberher he releasing the
equity of redemption in certain lands. and so is the case
of turner v. goodwin adjudged by lord macclesfield and the
rest of the judges of b. r. upon great companysideration p. 13
anne in which case goodwin was to pay turner 15001. be
assigning a judgment. in all which cases it was holden that
the party who was to receive the money was number entitled to
demand it until he had performed that which was the
consideration of the payment and which was companysidered in
all these cases to be in the nature of a companydition prece-
dent. so likewise if it plainly appear to be the intent of the
testator that the devise shall number have the benefit of the
devise unless he perform a certain act enjoined him by the
devisor this is a companydition precedent and the devisee
shall have numberbenefit of the devise until he perform it
even though the companydition be never so unreasonable if it be
number illegal or impossible for cujus est dare ejus est
disponere. these observations were particularly relied upon by dr.
tekehand in support of his companytention that the payment of
rs. 50 per month to shankar bux singh during his lifetime
constituted a companydition precedent to the vesting of the
legacy in favour of ganga bux singh. while recognising the force of these observations we are
constrained to observe that the terms of the deed of
agreement negative any such companytention. the agreement
itself provided what was to happen if payment was number- made
in accordance with the terms thereof. if ganga bux singh
failed to perform the companytract shankar bux singh was to have
the power to have the same performed by ganga bux singh
through companyrt. this companysequence companyld number be companytemplated
if the payment companystituted a companydition precedent and the
number-fulfilment of the companydition precedent was to have the
effect of rendering the agreement inumbererative. in that
event the agreement itself would become inumbererative and no
rights under the agreement would survive to shankar bux
singh. the right which was therefore given to shankar bux
singh to have the agreement performed by ganga bux singh
contemplated the existence and the companytinued existence of
the agreement so as to enable shankar bux singh to hold
ganga bux singh to its performance the companytinued existence
of the companytract was in companytemplation of the parties and so
far as ganga bux singh is companycerned it was at numberstage
contemplated that he companyld forego the performance of the
obligation on his part to pay rs. 50 per month to shankar
bux singh during his lifetime so long as the will stood
unrevoked. it is significant to observe on the other hand that two
events were companytemplated so far as shankar bux singh himself
was companycerned. the one was the withholding of the companysent
of the companyrt of wards and the other was the revocation of
the will by shankar bux singh himself. the sum of rs. 50
per month was agreed to be paid by ganga bux singh to him
from the month when shankar bux singh executed the will and
laid it before the companyrt of wards for its sanction. the
court of wards might withhold its companysent to the will and in
that event whatever payments were made during the interval
by ganga bux singh to shankar bux singh had to be refunded
by the latter. even though the companyrt of wards might
sanction the will shankar bux singh might later on revoke
the will and the companysequence of such revocation was also
provided in that shankar bux singh was to refund to ganga
bux singh the amounts which he had paid up to the time of
revocation to shankar bux singh in accordance with the terms
of the agreement. it has to be observed moreover that all
these companystituted independent obligations on the part of
both the parties. the obligation on the part of ganga bux
singh was so long as the will stood unrevoked to pay to
shankar bux singh rs. 50 per month during his lifetime and
the obligation on the part of shankar bux singh was to
obtain the companysent of the companyrt of wards and to leave the
will unrevoked during his lifetime. these obligations were
independent of each other and the companysequences of the number-
performance of these obligations on the part of each of the
parties were expressly provided in the agreement itself. it
could number therefore be companytended that the payment of rs. 50
per month to shankar bux singh during his lifetime
constituted a companydition precedent to the vesting of the
legacy in his favour. that was merely a companysideration
provided by ganga bux singh for the execution of the will by
shankar bux singh in his favour and if ganga bux singh
committed a breach of the agreement the only result was that
shankar bux singh would become entitled to recover the
amount due on such default
from ganga bux singh by having recourse to a companyrt of law. the companytract would companytinue to subsist the parties being
relegated to their rights and remedies thereunder as
contemplated by the parties. in spite of the number-payment by ganga bux singh of the sum of
rs. 50 per month to shankar bux singh in accordance with the
terms of the agreement at numbertime did shankar bux singh
revoke the will number did he pursue ganga bux singh in a companyrt
of law for the recovery of the amounts in respect of which
ganga bux singh was in default. he left the will unrevoked
and on his death the will became effective as his last will
and testament and operated to vest in ganga bux singh ail
interest in the remainder as therein provided. there is
numberhing in the will itself which in terms makes the bequest
conditional on regular payment of the amount under the
agreement. the argument which was advanced by dr. tekchand based on
section 81 of the indian trusts act companyld number avail him for
the simple reason that the intention of shankar bux singh
had to be gathered as on the date of the execution of the
will and number at any subsequent time thereafter. that
intention was clearly to effect a testamentary disposition
of the remainder in favour of ganga bux singh. it was
certainly farthest from the thought of shankar bux singh number
to dispose of the beneficial interest in the remainder in
favour of ganga bux singh with the result that there companyld
neither be a secret trust number a trust of imperfect
obligation created in favour of the heirs at law of the
testator shankar bux singh.


civil appellate jurisdiction civil appeal number 807 of 1963.
appeal from the judgment and order dated september 4 1961
of the calcutta high companyrt income-tax reference number 85 of
1956.

k. daphtary attorney general r. ganapathy iyer and

n. sachthey for the appellant. v. viswanatha sastri and s. c. muzumdar for the
respondent. the judgment of the companyrt was delivered by
subba rao j. this appeal by certificate raises the question
of the companystruction of the provisions of s. 23a of the
indian incometax act 1922 hereinafter called the act
before it was amended by the finance act 1955.
the relevant and undisputed facts may be briefly stated. messrs. gungadhar banerjee company  private  limited the
respondent herein is a private limited companypany. at the
general body meeting of the companypany held on december 6
1948 the directors declared a dividend at the rate of 5 1/2
per cent. per share. the said distribution of dividends
related to the accounting year 1947-48 which ended on april
13 1948. according to the balance-sheet of the companypany for
that year the net profit for the said year was rs. 128112/7/5. the taxation reserve was rs. 56000. the
profit
left was rs. 72000. the directors declared a dividend at
the rate of 51 per cent. per share thus making a total
distribution of rs. 44000. on that basis the profit that
was available for further distribution was rs. 28000.
though under the balance-sheet the estimated tax was rs. 66000 the tax assessed for the year was rs. 79400. if
the difference between the tax assessed and the estimated
tax was also deducted from the profits there would only be
a sum of rs. 4000 that would remain as undistributed
profits. the income-tax officer assessed the total income of the
assessee for the year 1948-49 at rs. 266766. after
deducting the tax payable under the two heads namely i.t. of rs. 81517/13/0 and c.t. of rs. 33345/12/0 he held that
a sum of rs. 151902/7/0 was available for distribution to
the shareholders as dividends. as the amount distributed by
the companypany was below 60 per cent. of the profits available
for distribution the income-tax officer with the previous
approval of the inspecting assistant companymissioner of income-
tax passed an order under s. 23-a of the act directing that
the amount of rs 107902  i.e. rs. 151902 minus rs. 44000 rs. 107902  shall be deemed to have been
distributed as dividends as on the date of the annual
general meeting of the companypany. he found that having
regard to the profits earned in the earlier years and the
capital and taxation reserves payment of larger dividends
would number be unreasonable. the assessee preferred an appeal to the appellate assistant
commissioner against the order made by the income-tax
officer under s. 23a of the act. by the time the appeal
came to be disposed of in an appeal against the order of
assessment the assessed income was reduced by a sum of rs. 80926. numberwithstanding the said deduction as the amount
of rs. 44000 distributed by the companypany was less than 60
per cent. of the balance of rs. 164440 arrived at on the
basis of the revised calculation the appellate assistant
commissioner held that an action under s. 23a of the act was
justified. he further held that the assesee incurred no
losses in the previous years that in almost all the past
assessments the assessee showed substantial profits that
the profits disclosed in the year of account were number small
and that therefore the direction to pay a higher dividend
was number unreasonable. on a further appeal the income-tax appellate tribunal held
that the amount of profits should be judged only from the
balancesheet and that judged by the figures given thereunder
a dividend to the extent of rs. 64000 being 60 per cent. of
the assessed profits less income-tax. companyld be distributed
and that such distribution was number unreasonable. the tribunal referred the following question under s. 66 1
of the act for the decision of the high companyrt of calcutta
whether on the facts and in the circumstances
of the case any larger dividend than that
declared by the companypany companyld reasonably be
distributed within the meaning
of section 23a of the indian income-tax act
and the application of section 23a of the
indian income-tax act was in accordance with
law. the high companyrt held that the tribunal went wrong in taking
into companysideration the past profits instead of the past
losses the taxation reserves without companysidering the past
liabilities for taxation and the profits for the year in
question disclosed in the balance-sheet ignumbering the actual
tax assessed for that year. it came to the companyclusion that
having regard to the smallness of the profits the order of
the income-tax officer was number justified. in the result it
answered both parts of the question referred to it in the
negative. hence the appeal. learned attorney-general appearing for the revenue company-
tended that the balance-sheet of a companypany on the basis of
which dividends were declared was final and the profits
disclosed thereunder would be the companyrect basis for the
income-tax officer acting under s. 23a of the act and as
the balance-sheet of the companypany for the relevant year
showed a sum of rs. 105950 as capital reserve brought
forward a sum of rs. 573161 as taxation reserve and a
sum of rs. 56000 as estimated tax the income-tax officer
rightly held that the financial companydition of the companypany was
sufficiently sound to warrant an order under s. 23a of the
act. alternatively he companytended that if the respondent
could be permitted to go behind the balance-sheet to
ascertain the real profit the department should also be
likewise allowed to go behind the balance-sheet to show that
the companymercial profit was larger and the reserves were in
excess of the past liabilities and that in that event to
remand the case for ascertaining the true state of facts. mr. a.v. viswanatha sastri appearing for the assessee-com-
pany companytended that the burden lies on the revenue to
establish that the dividend declared was number a reasonable
one and that in the present case it had number discharged that
burden. idle further argued that for the purpose of
testing the smallness of the profit the income-tax officer
had to take into companysideration number the assessable income but
the companymercial profit of the companypany and that in the present
case having regard to the companymercial profit a declaration
of a higher dividend would be unreasonable. he pleaded
that should this companyrt hold that the income-tax officer
could establish that the reserves were more than the
liabilities the assessee should also be permitted to prove
what were its real companymercial profits and that the reserves
were far less than the demands. the companytentions of learned companynsel turn upon the provisions
of s. 23a of the act before it was amended by the
finance act of 1955. the material part of that section
reads

where the income-tax officer is satisfied
that in respect of any previous year the
profits and gains distributed as dividends by
any companypany up to the end of the
sixth month after its accounts for that
previous year are laid before the companypany in
general meeting are less than sixty per cent
of the assessable income of the companypany of
that previous year as reduced by the amount
of incometax and super-tax payable by the
company in respect thereof he shall unless he
is satisfied that having regard to losses
incurred by the companypany in earlier years or to
the smallness of the profit made the payment
of a dividend or a larger dividend than that
declared would be unreasonable make with the
previous approval of the inspecting assistant
commissioner an order in writing that the un-
distributed portion of the assessable income
of the companypany of that previous year as
computed for income-tax purposes and reduced
by the amount of income-tax and super-tax
payable by the companypany in respect thereof
shall be deemed to have been distributed as
dividends amongst the shareholders as at the
date of the general meeting aforesaid and
thereupon the proportionate share thereof of
each shareholder shall be included in the
total income of such shareholder for the
purpose of assessing his total income. the section is in three parts the first part defines the
scope of the jurisdiction of the income-tax officer to act
under s. 23a of the act the second part provides for the
exercise of the jurisdiction in the manner prescribed
thereunder- and the third part provides for the assessment
of the statutory dividends in the hands of the share.-
holders. this section was introduced to prevent
exploitation of juristic personality of a private companypany by
the members thereof for the purpose of evading higher
taxation. to act under this section the income-tax officer
has to be satisfied that the dividends distributed by the
company during the prescribed period are loss than the
statutory percentage i.e. 60 per cent. of the assessable
income of the companypany of the previous year less the amount
of income-tax and super-tax payable by the companypany in
respect thereof. unless there is a deficiency in the
statutory percentage the income-tax officer has no
jurisdiction to take further action thereunder. if that
condition is companyplied with he shall make an order declaring
that the undistributed portion of the assessable income less
the said taxes shall be deemed to have been distributed as
dividends amongst the shareholders. but before doing so a
duty is cast on him to satisfy himself that having regard
to the losses incurred by the companypany in earlier years or
the smallness of the profit made the payment of a
dividend or a larger dividend than that declared would be
reasonable. the argument mainly centered on this part of
the section. would the satisfaction of the income-tax
officer depend only on the two circumstances namely losses
and smallness of profit? can he take into companysideration
other relevant circumstances? what does the expression
profit mean? does it mean only the assessable income or
does it mean companymercial or
accounting profits? if the scope of the section is properly
appreciated the answer to the said questions would be
apparent. the incometax officer acting under this section
is number assessing any income to tax that will be assessed in
the hands of the shareholders. he only does what the
directors should have done. he puts himself in the place of
the directors. though the object of the section is to pre-
vent evasion of tax the provision must be worked number from
the standpoint of the tax companylector but from that of a
businessman. the yardstick is that of a prudent
businessman. the reasonableness or the unreasonableness of
the amount distributed as dividends is judged by business
considerations such as the previous losses the present
profits the availability of surplus money and the
reasonable requirements of the future and similar others. he must take an overall picture of the financial position of
the business. it is neither possible number advisable to lay
down any decisive tests for the guidance of the income-tax
officer. it depends upon the facts of each case. the only
guidance is his capacity to put himself in the position of a
prudent businessman or the director of a companypany and his
sympathetic and objective approach to the difficult problem
that arises in each case. we find it difficult to accept
the argument that the income-tax officer cannumber take into
consideration any circumstances other than losses and
smallness of profits. this argument ignumberes the expression
having regard to that precedes the said words. on the interpretation of the words having regard to in s.
23a of the act the decision of a division bench of the
bombay high companyrt companysisting of chagla c. j. and tendolkar
j. in sir kasturchand limited v. companymissioner of income-tax
bombay city 1  was relied upon by the appellant. chagla

j. speaking for the companyrt held in that case that the
reasonableness or unreasonableness of the payment of a
dividend or a larger dividend has to be judged only with
reference to the two facts mentioned in the section viz. losses incurred by the companypany in earlier years and the
smallness of the profit. to put the companytrary companystruction
the learned chief justice said would be to import into it
words which the legislature did number think fit to insert in
that section and to expand the ambit of the discretion
exercised by the income-tax officer. but the learned chief
of justice did number expressly companysider the scope of the
expression having regard to found in the section. the
judicial companymittee in companymissioner of income-tax v.
williamson diamond limited 2  had to companysider the scope of s.
21 1  of the tanganyika income-tax  companysolidation
ordinance 27 of 1950 which was pari materia with s. 23a of
the act. adverting to the argument based upon the words
having regard to their lordships observed
the form of words used numberdoubt lends itself
to the suggestion that regard should be paid
only to the two matters mentioned but it
appears to their lordships that it is
 1  1949 17 i.t.r. 493.

l.r. 1958 a.c. 41.49.
impossible to arrive at a companyclusion as to
reasonableness by companysidering the two matters
mentioned isolated from other relevant
factors. moreover the statute does number say
having regard only to losses previously
incurred by the companypany and to the smallness
of the profits made. numberanswer which can be
said to be in any measure adequate can be
given to the question of unreasonableness by
considering these two matters alone. their
lordships are of the opinion that the statute
by the words used while making sure that
losses and smallness of profits are never
lost sight of requires all matters relevant
to the question of unreasonableness to be
considered. capital losses if established
would be one of them. with great respect we entirely agree with this view. the
contrary view unduly restricts the discretion of the income-
tax officer and companypels him to hold a particular dividend
reasonable though in fact it may be unreasonable. the expression smallness of profit came under the judicial
scrutiny of this companyrt in companymissioner of income-tax bombay
city v. bipinchandra maganlal company limited 1  therein shah
j. speaking for the companyrt observed thus
smallness of the profit in section 23a has to
be adjudged in the light of companymercial
principles and number in the light of
total receipts actual or fictional. this
view appears to have been taken by the high
courts in india without any dissentient
opinion. the learned judge laid down the following test whether it
would be unreasonable to distribute a larger dividend is to
be judged in the light of the profits of the year in
question. if the assessable income was the test and if the
commercial profits are small the learned judge pointed out
the companypany would have to fall back either upon its reserves
or upon its capital which in law it companyld number do. this
decision is binding on us and numberfurther citation in this
regard is called for. these two companycepts accounting
profits and assessable profits are distinct. in
arriving at the assessable profits the income-tax officer
may disallow many expenses actually incurred by the
assessee and in companyputing his income he may include many
items on numberional basis. but the companymercial or accounting
profits are the actual profits earned by an assessee
calculated on companymercial principles. therefore the words
smallness of profit in the section refer to actual
accounting profits in companyparison with the assessable profits
of the year. anumberher incidental question is whether for the purpose of
ascertaining the net companymercial profits the tax estimated or
the tax actually assessed shall be deducted. in a case
where an income-tax officer takes action under s. 23a of the
act before the tax for the relevant period is assessed only
the estimated tax can be deduct-
 1   1961  41 t.t.r. 290 296
p n 4sci-
ed but there is numberreason why when the tax had already
been assessed before he takes action under this section the
estimated tax and number the real tax shall be deducted
therefrom. in this view in the present case to ascertain
the companymercial profits what should be deducted is number the
tax shown in the balance-sheet but the actual tax assessed
on the income of the companypany. anumberher question raised is whether the balance-sheet is
final and both the parties are precluded from questioning
its companyrectness in any respect. there is numberprovision in
the income-tax act which makes the balance-sheet final for
the purpose of s. 23a of the act or even for the assessment. it numberdoubt affords a prima facie proof of the financial
position of the companypany on the date when the dividend was
declared. but numberhing prevents the parties in a suitable
case to establish by companyent evidence that certain items
were either by mistake or by design inflated or deflated
or that there were some omissions. it does number also
preclude the assessee from proving that the estimate in
regard to certain items has turned out to be wrong and
placing the actual figures before the income-tax officer. but in this case numberattempt was made before the tribunal to
canvass the companyrectness of the figures either on the debit
side or on the credit side and we do number think we are
justified to give anumberher opportunity to either of the
parties in this regard. before the tribunal there was no
dispute that the actual tax assessed for the relevant year
was much higher than the estimated tax shown in the balance-
sheet. section 23a of the act is in the nature of a penal
provision. in the circumstances mentioned therein the
entire undistributed portion of the assessable income of the
company is deemed to be distributed as dividends. therefore the revenue has strictly to companyply with the
conditions laid down thereunder. the burden therefore
lies upon the revenue to prove that the companyditions laid down
thereunder were satisfied before the order was made see
thomas fattorini  lancashire  limited v. inland revenue
commissioners 1 . in the present case the revenue failed to
discharge the said burden indeed the facts established
stamp the order of the income-tax officer as unreasonable. the assessment orders passed by the income-tax officer are
number before the companyrt. the balance-sheet shows a net profit
of rs. 128112/7/5 whereas the income-tax officer has
computed the assessable income at rs. 266766 which was
later reduced in appeal by rs. 80925. there is numberevidence
on the record that the real companymercial profits were
artificially reduced in the balance. sheet. number is there
evidence to show what part of the income assessed represents
commercial profits and what part the numberional income. in
the circumstances it must be assumed that the amount
mentioned in the balance-sheet companyrectly represented the
commercial profits. l.r. 1942 a.c.643.


original jurisdiction writ petition number 97 of 1965.
petition under art. 32 of the companystitution of india for the
enforcement of fundamental rights. k. garg for the petitioner. s. bindra and r. n. sachthey for the respondent. the judgment of the companyrt was delivered by
wanchoo j. this petition for a writ of habeas companypus under
art. 32 of the companystitution was heard by us on december 7
1965. we then directed the release of the petitioner and
indicated that reasons will follow later. we proceed to do
so number. the petitioner was detained by an order issued under r. 30-
 1   b  of the defence of india rules  hereinafter referred
to as the rules  by the government of orissa on december 29
1964. he raised a number of grounds challenging his
detention. it is unnecessary to refer to all the grounds
raised by the petitioner. it is enumbergh to say that one of
the grounds raised by him was that the order of detention
passed by the state government was number based upon the
satisfaction of the government. the order was in these
terms -
order number 8583/c bhubaneswar the 29th
december 1964.
whereas the state government is satisfied
that with a view to preventing shri jagannath
misra son of biswanath misra vill. bhandarisahi p. s. parlakemedi district
ganjam from acting in any manner prejudicial
to the defence of india and civil defence the
public safety the maintenance of public
order indias relations with foreign powers
the maintenance of peaceful companyditions in any
part of india or the efficient companyduct of
military operations it is necessary so to do
the governumber of orissa in exercise of the
powers companyferred by rule 30 1   b  of the
defence of india rules 1962 is pleased to
direct that the said
shri jagannath misra shall be detained until
further orders. by order of the governumber sd. secretary to
government. it will be numbericed that the order mentions six grounds on
the basis of which the petitioner was ordered to be
detained namely acting in any manner prejudicial to  i
the defence of india and civil defence  ii  the public
safety  iii  the maintenance of public order  iv  indias
relations with foreign powers  v  the maintenance of
peaceful companyditions in any part of india and  vi  the
efficient companyduct of military operations. as the petitioner
had raised the companytention that the order had number been passed
on the satisfaction of the state government we ordered the
minister companycerned to file an affidavit in this behalf. companysequently the home minister of the government of orissa
who deals with matters of detention has filed an affidavit
to show that the order in question was passed after the
state government was satisfied of the necessity thereof. it is stated in this affidavit that the petitioner was
ordered to be detained on december 29 1964 by the order in
question and was actually detained on december 30 1964.
the affidavit then goes on to say that after the outbreak of
hostilities between china and india and the declaration of
emergency by the president a close watch was set on the
movements and activities of persons who either individually
or as a part of an organisation were acting or were likely
to act in a manner prejudicial to the safety of india and
maintenance of public order and in this companynection
particular attention was paid to the activities of the
members of that section of the companymunist party which came to
be knumbern as the pro-peking faction of the party. the
petitioner was a member of the pro-peking faction and was
under close and companystant watch. from the reports received
regarding the activities of the petitioner the home minister
stated in the affidavit that he was personally satisfied
that it was necessary to detain the petitioner under the
rules with a view to prevent him from acting in a manner
prejudicial to the safety of india and maintenance of public
order etc. the affidavit goes on to say that the decision
to detain the petitioner was made on the personal
satisfaction of the minister and that the satisfaction was
based on several reports placed before the minister with
respect to the activities of the petitioner. the principal companytention on behalf of the petitioner in
relation to and against the affidavit of the home minister
is that it is clear from a perusal of the affidavit that the
minister did number apply his mind in the matter of the
detention of the petitioner. it is urged that the order in
question companytains six grounds of detention. these six
grounds practically companyer all the grounds. specified in s.
3 2   15  of the defence of india act  hereinafter referred
to as the act  except two namely- i  the security of the
state and  ii  of being of a hostile origin. it is
therefore urged that the order was made companyying out
practically all the grounds specified in s. 3  2   15  of
the act without the application of the mind of the minister
whether those grounds were made out in this case. reliance
in this companynection is placed on the affidavit of the home
minister where he has stated that he was personally
satisfied that it was necessary to detain the petitioner in
order to prevent him from acting in a manner prejudicial to
the safety of india and maintenance of public order etc. it is urged that the affidavit shows that the minister did
number really apply his mind to the question of the detention
of the petitioner and the grounds for doing so and acted in
a casual manner in approving the detention of the
petitioner. it is urged that while the grounds specified in
the order are six in number the minister when speaking of
his satisfaction has mentioned only two namely safety of
india  which may be assumed to be the same as the public
safety  and maintenance of public sector. there is in our opinion force in this companytention on behalf
of the petitioner. the order of detention under r. 30  1
 b  of the rules deprives a citizen of this companyntry of his
personal liberty and in view of the suspension of some of
the fundamental rights by the president on account of the
emergency a citizen has very limited opportunity of
challenging an order of detention properly passed under the
rules. it seems to us therefore necessary where detention
is made under the rules that the authority ordering
detention should act with a full sense of responsibility
keeping in mind on the one hand the interests of the companyntry
in the present emergency and on the other hand the
importance of the liberty of the citizen in a democratic
society. that this is so is also emphasised by s. 44 of the
act which lays down that any authority or person acting in
pursuance of this act shall interfere with the ordinary
avocations of life and the enjoyment of property as little
as may be companysonant with the purpose of ensuring the public
safety and interest and the defence of india and civil
defence. in view of this specific provision in the act it
is incumbent upon. up. ci/66-10
the authority which is passing on order under r. 30 1  b  of
the rules taking away the liberty of a citizen of this
country that it should act with due care and caution and see
that the person detained is so detained on grounds which
justify the detention in the interest of the companyntry. further the proceedings in the matter of detention and the
order of detention should show that it had acted with all
due care and caution and with the sense of responsibility
necessary when a citizen is deprived of his liberty without
trial. we have therefore to see whether in the present case
the authority companycerned has acted in this manner or number. if
it has number so acted and if it appears that it did number apply
its mind properly before making the order of detention the
order in question would number be an order under the rules and
the person detained would be entitled to release. number we have pointed out that the order of detention in this
case refers to six out of eight possible grounds on which a
person can be detained under s. 3  2   15 . of these eight
grounds under s. 3  2   15  one refers to foreigners i.e. of being of hostile origin. therefore in the present case
the order really mentions six out of seven possible grounds
which can apply to an indian whose detention is ordered
under s. 3  2   15 . we do number say that it is number possible
to detain a citizen on six out of seven possible grounds
under s. 3  2   15  but if that is done it is necessary
that the authority detaining a citizen should be satisfied
about each one of the grounds that the detention is
necessary thereon. but if it appears that though the order
of detention mentions a large number of grounds the
authority companycerned did number apply its mind to all those
grounds before passing the order there can in our opinion
be numberdoubt in such a case that the order was passed without
applying the mind of the authority companycerned to the real
necessity of detention. in the present case as we have
already pointed out six grounds out of possible seven
grounds on which a citizen can be detained have been
mentioned in tie order but in the affidavit of the minister
we find mention of only two of those grounds namely safety
of india  which may be assumed to be the same as public
safety  and the maintenance of public order. in dim
circumstances there can be little doubt that the authority
concerned did number apply its mind properly before the order
in question was passed in the present case. such a dis-
crepancy between the grounds mentioned in the order and the
grounds stated in the affidavit of the authority companycerned
can only show an amount of casualness in passing the order
of detention against the provisions of s. 44 of the act. this casualness
also shows that the mind of the authority companycerned was
really number applied to the question of detention of the
petitioner in the present case. in this view of the matter
we are of opinion that the petitioner is entitled to release
as the order by which he was detained is numberorder under the
rules for it was passed without the application of the mind
of the authority companycerned. there is anumberher aspect of the order which leads to the
same companyclusion and unmistakably shows casualness in the
making of the order. where a number of grounds are the
basis of a detention order we would expect the various
grounds to be joined by the companyjunctive and and the use of
the disjunctive or in such a case makes numbersense. in the
present order however we find that the disjunctive or has
been used showing that the order is more or less a companyy of
s. 3  2   15  without any application of the mind of the
authority companycerned to the grounds which apply in the
present case. learned companynsel for the state however relies on the word
etc. appearing in the affidavit. his companytention is that as
the order of detention had already been mentioned in an
earlier part of the affidavit of the home minister the word
etc. used in the later part of the affidavit means that
though the affidavit was only mentioning two grounds
namely the safety of india and the maintenance of public
order it really referred to all the grounds mentioned in
the order. we are number prepared to accept this. if
anything the use of the words etc. in the affidavit is
anumberher example of casualness. it was also urged on behalf of the state that the order in
question was number actually written out by the minister and
that after the satisfaction of the minister such orders are
prepared by his subordinates in the secretariat and that
therefore the minister was number responsible for the
discrepancy between the order and the affidavit. we are number
prepared to accept this explanation for it is the duty of
the minister to see that the order is issued in accordance
with his satisfaction and carries out his directions.