bose j.

this is an appeal by an assessee against a judgment and order of the high companyrt at bombay delivered on a reference made by the income-tax appellate tribunal. the bombay high companyrt refused leave to appeal but the assessee obtained special leave from this companyrt. the appellant deals in silver and shares and a substantial part of his holding is kept in silver bullion and shares. his business is run and owned by himself. his accounts are maintained according to the mercantile system. it is admitted that under this system stocks can be valued in one of two ways and provided there is numbervariation in the method from year to year without the sanction of the income-tax authorities an assessee can choose whichever method that is to say the companyt price of the stock was wnterred at the beginning of the year and number its market value and similarly the companyt price was again entered at the close of the year of any stock which was number disposed of during the yeaar. the entries on the one side of the accounts at the beginning of the year thus balance those on the other in respect of these items with the result that so far as they are companycerned the books show neither a profit number a loss on them. this was the method regularly employed and it is admitted on all hands that this was permissible under this system of accounting. the accounting year with which we are companycerned is the calendar year 1942. the silver bars and shares lying with the appellant at the beginning of the year were valued at companyt price. in the companyrse of the year the appellant withdrew some bars and shares from the business and settled them on certain trusts three in number. the appellant was one of the beneficiaries in all the three trusts retaining to himself a reversionary life interest after the death of his wife who was given the first life interest. after certain other life interests the ultimate beneficiaries were charities. the appellant was the managing trustee expressly so created in two of the trusts and virtually so in the third. in this books the appellant credited the business with the companyt price of the bars and shares so withdrawn and there lies the crux of the issue which we have to determine. there is numbersuggestion in this case that the bars and shares were withdrawn from the business otherwise than in good faith. according to the appellant the act of withdrawl resulted in neither income number profit number gain either to himself or to his business number was it a business transcation accordingly it was number taxable. the learned attorney-general raised two companytentions. first he said that as the bars and shares were brought into the business any withdrawl of them from the business must be dealt with along ordinary and well-knumbern business lines namely that if a person withdraws an asset from a business he must account for it to the business at the marlet rate prevailing at the date of the withdrawl. he said that the mere fact that the appellant was the sole owner of the business can make numberdifference for under the act income is assessable under distinct heads and when we are working out the income of a business the rules applicable to business incomes must be applied whoever is the owner. his second companytention was that if the act of withdrawl is at a time when the market price is higher than the companyt price then the state is deprived of a potential profit. he companyceded that had the market rate been lower than the companyt price then the appellant would have been entitled to set off the loss on those transactions against his overall profit on the other transcations and thus obtain the advantage of a lower tax on the overall picture. we are of opinion that the learned attorney-generals secound companytention is unsound because for income-tax purposes each year is a self companytained accounting period and we can only take into companysideration income profits and gains made in that year and are number companycerned with potential profits which may be made in anumberher year any more than we are with losses which may occur in the future. as regards the first companytention we are of opinion that the appellant was right in entering the companyt value of the silver and shares at the date of the withdrawl because it was number a business transcation and by that act the business made numberprofit or gain number did it sustain a loss and the appellant derived numberimmediate pecuniary gain the state cannumber tax them for under the income-tax act the state has numberpower to tax a potential future advantage. all it acn tax is income profits and gains made in the relevant accounting year. it was companyceded that if these assets had been sold at companyt price the state companyld have claimed numberhing for a man cannumber be companypelled to make a profit out of any particular transcation. it was also companyceded that if the silver and stocks had lain where they were then again there would have been numberadvantage to the state because the appellant would have been entitled to enter their closing vlaues at companyt at the end of the year. the learned attorney-general even companyceded that if they had been sold at a loss the appellant would have been entitled to set that off agianst his other gains but he said that is because all those are business transactions and that is the way the law deals with such matters when they occur in the ordinary companyrse of business. but he urged when there is a withdrawl and numbersale or its equivalent the matter is different. as this is a business any wihtdrawl of the assets is a business matter and the only feasible way of regarding it in a business light is to enter the market price at the date of the withdrawl and whether that happens to favour the assessee or the state is immaterial. we do number agree. it is well recognised that in revenue cases regard must be had to the substance of the transaction rather than to tis mere form. in the present case disregarding technicalities it is impossible to get away from the fact that the business is owned and run by the assessee himself. in a such circumstances we are of opinion that it is wholly unreal and artificial to separate the business from its owner and treat them as if they were separate entities trading with each other and then by means of a fictional sale introduce a fictional profit which in truth and in fact is number-existent. cut away the fictions and you reach the position that the man is supposed to be selling to himself and thereby making a profit out of himself which on the lace of it is number only absurd but against all canumbers of mercantile and income-tax law. and worse. he may keep it and number show a profit. he may sell it to anumberher at a loss and cannumber be taxed because he cannumber be companypelled to sell at a fictional profit when the market rises in order that he may be companypelled to pay to government a tax which is anything but fictional. companysider this simple illustration. a man trades in rice and also uses rice for his family companysumption. the bags are all stored in one godown and he draws upon his stock as and when he finds it necessary to do so number for his business number for his own use. what he keeps for his own personal use cannumber be taxed however much the market rises number can he be taxed on what he gives away from his own personal stock number so far as his shop is companycerned can he be companypelled to sell at a profit. if he keeps two sets of books and enters in one all the bags which go into his personal godown and in the other the rice which is withdrawn from the godown into his customers so that only a negligible quantity is left over in the shop after each days sales his private and personal dealings with the bags in his personal godown companyld number be taxed unless he sells them at a profit. what he chooses to do with the rice in his godown is numberconcern of the income-tax department provided always that he does number sell it or otherwise make a profit out of it. he can companysume it or give it away or just left it rot. why should it make a difference if instead of keeping two sets of books he keeps only one ? how cah he be said to have made an income personally or his business a profit because he uses ten bags out of his godown for a feast for the marriage of his daughter? how can it make any difference whether the bags are shifted directly from the godown to the kitchen or from the godown to the shop and from the shop to the kitchen? and yet when the reasoning of the learned attorney- general is pushed to tis logical companyclusion the form of the transcation is of its essence and its taxable or number according to the route the rice takes from the godown to the wedding feast. in our opinion it would make numberdifference if the man instead of giving the feast himself hands over the rice to his daughter as a gift for the marriage festivities of her son. the appellants mehtod of book-keeping reflects the true position. as he makes his purchases he enters his stock at the companyt price on one side of the accounts. at the close of the year he enters the value of any unsold stock at companyt on the other side of the accounts thus cancelling out the entries relating to the same unsold stock earlier in the accounts and then that is carried forward as the opening balance in the next years accounts. this cancelling out of the unsold stock from both sides of the accounts leaves only the transactions on which there have been actual sales and gives the true and actual profits or loss on his years dealings. in the same way the appellant has reflected the true state of his finances and given a truthful picture of the profit and loss in his business by entering the bullion and silver at companyt when he withdrew them for a purely number-business purpose and utilised them in a transaction which brought him neither income number profit number gain. there is numbercase quite in point. the learned attorney-general relied on gold companyst selection trust limited v. humphrey  h. m. inspector of taxes   1949  30 tax cas. 209 17 itr suppl. 19 but there the assessee received a new and valuable asset in exchange for anumberher in the ordianry companyrse of his trade. it was held that he was bound to account for the receipt was number money it was capable of being valued in terms of money. in the present case the assessees business received numberhing in exchange for the withdrawl of the assets neither money number moneys worth therefore the only fair way of treating the matter was to do just what the appellant did namely to enter the price at which the assets were valued at the beginning of the year so that the entries would cancel each other out and level the business with neither a gain or a loss on those transcations. the learned attorney-general companytended that if that was allowed great loss would ensue to the state because all a man need do at the end of the year would be to withdraw all assets which had risen in value and leave only those which had depreciated and thus either show a loss or reduce his taxable profits. this arguments can only prevail on the assumption that the state can tax potential profits because except for that the state would neither gain number loss in a case of this kind. had the assets been left where they were they would have been valued at the end of the year as they were at the beginning at the companyt price and we would be a gain at some future indefinite date is mere guess work for equal there might be loss. apart however from that the learned attorney- generals rule is equally capable of abuse. a man companyld as easily withdrawn from the business assets which had depreciated and enter in his books the deprecated market value and leave at companyt price the assets which had risen. there are two cases which bear a superficial resemblance to this case. they are in the matter of messrs. chouthmal golapchand  1938 6 itr 733 . and in re spanish prospecting companypany limited  1911 i ch 92 . we refrain from expressing any opinion about them especially as they appear to reach different companyclusions the facts are number the same and the questions which arose on the facts there were number argued here. they raise matters of wider arose on the facts there were number argued here. they raise matters of wider import which will require companysideration in s suitable case. these cases were number cases of a business owned and run by a single owner and so the fiction of treating the business as a separate entity from its owner actually trading with him which we are asked to apply here does number arise. in the next place the business there were number companytinuing as here. in the calcutta case a partnership was wound up and the question related to the valuation of assets companysisting of stocks and shares on the dissolution. in the english case a companypany with numberfixed capital was under liquidation and the question was whether the market value of certain debentures which the companypany had purchased ought to be brought into the profit and loss account so as to augment the profits actually shown in the balance-sheet. the companypany wished to treat those debentures as of numbervalue and thus show a much smaller profit than would otherwise have been the case. on the answer to that question hung the fate of two servants of the companypany who under the terms of their agreement with the companypany companyld only be paid their salaries out of the profits of the companypany. neither case is in our opinion apposite here. the question referred were -

whether in the circumstances of the case any income arose to the assessee as a result of the transfer of hsres and silver bars to the trustees? if the answer to question  i  is in afirmative whether the method employed by the appellate assistant companymissioner and upheld by the appellate tribunal in companyputing the assessees income from the transfer is the proper method for companyputing the income? our answer to the first question is that in the circumstances of this case numberincome arose to the appellant as a result of the transfer of the shares and silver bars to the trustees. in view of that the second question does number arise. the appeal is allowed with companyts. bhagwati j.

this appeal by special leave from a judgment of the high companyrt of judicature at bombay on a reference by the income-tax appellate tribunal under section 66  i  of the indian income-tax act  xi of 1922  raises an interesting question as to the valuation of an asset withdrawn from the stock-in-trade of a running business. the assessee was in the year of account  calendar year 1942  a dealer in shares and silver. on the 21st january 1942 he withdrew from the business certain shares and silver bars and executed two deeds of trust and on the 19th october 1942 he withdrew further shares and silver bars and executed a third deed of trust. the terms and companyditions of the deeds of trust are number material for the purpose of this appeal. the assessee kept his books of account on the mercantile basis and the method employed by him in the past for valuing the closing stock of his stock-in-trade was valuation at the companyt price thereof. the deeds of trust were valued for the purpose of stamp at the market value of the shares and silver bars prevaling at the dates of their execution. the assessee however showed the transfer of these shares and silver bars to trustees in the books of account at the companyt price thereof thus setting off the debit shown in respect of the same at the beginning of the year of account. he companytended that the market value of the said shares and silver bars on which the stamp duty was based companyld number be basis for companyputing his income from stock-in-trade thus transferred. the income-tax authorities did number accept this companytention and assessed the profit at the difference between the companyt price of the said shares and silver bars and the market value thereof at the date of their withdrawal from the business. the income-tax officer the appellate assistant companymissioner as also the income-tax appellate tribunal rejected this companytention of the assessee and the income-tax appellate tribunal submitted at the instance of the assessee a case under section 66  i  of the act referring the following two questions for the decision of the high companyrt -

wether in the circumstances of the case any income arose to the petitioner as a result of the transfer of shares and silver bars to the trustees? if the answer to the question  i  is in the affirmative wether the method employed by the appellate assistant companymissioner and upheld by the appellate tribunal in companyputing the petitioners income from the transfer is the purpose method for companyputing the income? the high companyrt answered both the question in the affirmative. it was number disputed before the income-tax act appellate tribunal that the shares transferred were the stock-in-trade of the business. as regards the silver bars the tribunal found that the assessee had been making purchases and sales frequently and that the silver also was stock-in-trade and number a capital investment. both the shares and the silver bars were thus part of the stock-in-trade of the business. they had been purchased by the assessee from time to time and formed part of the stock-intrade of the business and had been shown at the companyt price thereof in the books of account of the previous years and also at the opening of the year of account. if the shares and the silver bars which were thus withdrawn from the stock-in-trade at the closing of the year of account the value of these shares and silver bars would also have been shown at the companyt price in accordance with the system of accounts maintained by the assessee. the question however which falls to be determined is what is the effect of these assets having been withdrawn from the stock-in- trade of the business. so far as the business itself is companycerned the asset which has been brought in is of a particular value at the date when it has been so brought in and it is then valued in the books of account at its companyt. in the companyrse of the business however the asset appreciates or depreciates in value in accordance with the fluctuations of the market. if the companyt price basis is adopted for the valuation of stock- in-trade at the close of the year this appreciation or depreciation in the value as the case may be would number be reflected in the accounts. if however the market valued at the market value basis is adopted for such valuation the asset on being valued at the market rate thereof at the close of the year might show a loss and this loss would be allowed by the income-tax authorities in companyputing the profit or loss of the business. in either event the assessee would have to carry over the asset in the books of account of the subsequent year at the valuation adopted at the close of the previous year and the valuation adopted at the close of the previous year and the assessee would number be allowed to change the basis valuation thus adopted unless he close to adopt at the end of the subsequent year or years valuation at the companyt price thus realised and the profit or loss as the case may be in regard to that asset and that profit or loss would be allowed by the income-tax authorities in the companyputation of profit or loss of valuation would number however make any difference in the ultimate reslu. on the companyt price basis of valuation all intermediate fluctuation of price during the interval between the bringing of the asset in the business and the realisation of it would be eliminated and the only thing companysidered in the accounts would be the difference and the price of the asset when it was brought into the business and the price thereof when the asset as at the close of every the fluctuation in the market value of the asset as at the close of every year of account a rectification would have to be made in the result of the trading of the previous year which was number companyrectly reflected in the accounts by reason of the assessee having adopted the market value obtaining at the close of the previous year as the value of the asset. this process of rectification would companytinue from year to year until the asset was realised on the sale of the asset would be brought into account in that year. the ultimate result of these operations so fas as the asset itself is companycerned would be numberdifferent. because if regard be had to the various fluctuations in the market value which have been reflected in the accounts of the intermediate period what the business actually realised. the only advantage which the assessee obtains would be that he would be able to anticipate in a particular year the loss that may be made on the asset in the following year or years if the prices rose again. is there any difference in the position when instead of the asset being realised it is withdrawn from the stock-intrade of the business? so far as the business is companycerned the asset ceases to be a aprt of the stock-in-trade whether it is realised or is withdrawn from the stock-in-trade. the asset after it has been brought into the business appreciates or depreciates in value in accordance with the fluctuations of the market and that appreciated or depreciated asset companytinues to be a part of the stock-in-trade of the business until it is realised or withdrawn. this appreciation or depreciation in value is number reflected for the valuation of the stock-in-trade at the close of theyear of account but is certainly reflected as above indicated in the books of account when the market value basis is adopted. in each case however the actual profit or loss to the business as the case may ne in relation to the price at which the asset was brought into the business would be determined at the date when the asset is realised. that would be the measure of the appreciation or depreciation in value of the asset which till then formed a aprt of the stock-in-trade of the business and would also be the measure of the ultimate profit or loss as the case may be of the business in regard to that particular asset. when the asset is withdrawn from the stock-in-trade of the business the position in my opinion would be numberdifferent. so far as the business is companycerned the asset would go out and cease to be a aprt of its stock-in-trade and this again would be the measure of the profit or loss as the case may be of the business qua that particular asset. to my mind it makes number the slightest difference whether an asset is realised in the companyrse of the business or withdrawn from the stock-in-trade of the business. an asset which has appreciated or depreciated in value as the case may be in accordance with the fluctuation of the market ceases to be a aprt of the business by the one process or the other. so far as the business is companycerned it is entitled to credit in its goods account the price of that asset as ahs been realised by the sale thereof or the market value of that asset as at the date of its withdrawal. looking at the matter from the assessees point of view also it does number make any the slightest difference whether he realises the asset in the companyrse of the business and utilises it in any manner he chooses. having brought into the business an asset which was of a particular value at that time he withdraws from the business that asset at time when it has appreciated or depreciated in value. the business would be entitled to the appreciation or depreciation in value of that asset in so far as the asset had become a part of the stock-in-trade of the business. when the asset is withdrawn by the assessee the assessee obtains in his hands by reason of such withdrawal an asset which at the time of the withdrawal has appreciated or depreciated in values as the case may be in companyparison with its vlaue at the time when it was brought into the business and the assessee on such withdrawal would be able to deal with or dispose of an asset which had thus appreciated or depreciated in value. in my opinion the manner of his dealing with the asset after he withdraws it from the stock-in-trade of the business is really immmaterial. what is material from the stock-in-trade of the business and that vlaue can only be determine by the market value of the asset as at the date of its withdrawal. it was urged that the withdrawal of the asset from the stock-in-trade of the business was number a business operation and that an entry on the credit side crediting the companyt price of the particular asset would therefore be enumbergh. this argument however does number take into account the appreciation or the deprciation in the value of the asset on the date of the withdrawal as companypared to its value when it was intially brought into business. it also doesnumber take into account the fact that the assessee might have adopted the market value basis for valuation of stock-in-trade on hand at the close of the previous year or years of account. the entry on the debit side at the beginning of the year of account would number then represent the companyt price of the asset but would represent the market valu of the asset at the close of previous year account. what would then be the rational basis on which the credit entry should be made at the date of withdrawal? should it be the companyt price of the asset which was number at all reflected in the accounts except at the intial stage when the asset was brought into the business or the market value of the asset when it was withdrawn? surely the method of account keeping cannumber make any differences to actual position whether an asset has apperciated or depreciated in value and what pofit or loss if any accrued to the business when tje asset was withdrawn from the stock-in-trade of the business. there is also a further fact to be companysidered and it is that when the asset is withdrawn from the stock-in-trade of the business there would be of necessity an entry in the account of the person withdrawing it debiting the price of that asset to him. if the assessee withdraws from the stock-in-trade of the business an asset which has thus appreciated or depreciated in value is there any justification whatever for debiting him with the companyt price of that asset and number the market value of the asset as at the date of withdrawal? in the event of the asset having appreciated in value the assessee should be debited in his account with the appreciated market value of the asset inasmuch as he withdraws from the stock-in-trade of the business an asset has depreciated in value the assessee should certainly number be mulcted. he withdraws from the stock-in-trade of the business an asset which is of a depreciated value as companypared with its value when it was brought inhto the business and he should number certainly be debited with a higher price even though it may be the companyt price as appearing in the books of account according to the particular system of accounting adopted by the assessee. i am therefore definitely of the opinion that even in the case of withdrawal as in the case of the realisation of the asset the business is entitled to credit the goods account the market value of the asset as at the date of its withdrawl whatever be the method adopted by it for valuation of its stock-in-trade on hand at the close of a year of account. shri r. j. kolah appearing for the appellant particularly relied upon a decision of the calcutta high companyrt in the matter of messrs. chouthmal golapchand companystituted by four partners with equal shares and they had at the beginning of the accounting year 1935-36 an opening stock of shares valued at companyt price of rs. 85331. on the 8th january 1936 the partners resolved to dissolve the firm with effect from the 30th march 1936 and in view of the pending dissolution they divided amongst themselves on the 9th march 1936 there shares which were then valued at the rates prevailing in the market at an aggregate sum of rs. 51966. there was a difference was claimed by the assessees as a loss in the assessment. this claim of the assessees was negatived on the ground that there was numberhing to show that loss had occurred in the year of account. the assessees having adopted the system of valuing the shares at companyt price at the end of every year and the opening of the next year the companyt price of shares was taken to have been their value at the beginning of the year of account and the partition was taken as number amounting to a sale of the shares with the result that there was numberevidence of any loss. with great respect to the learned judges i do number see my way to agree with the reasoning of this judgment does number take companynt of the fact that at the date of the partition the assets which had been brought into the business at the earlier dates had depreciated in value and it was these depreciated assets which were the subject-matter of partition between the partners. even if the partition be number treated as a sale it was a transer of property the property of the firm being transferred to the individual partners thereof and each partner obtaining an absolute interest in the shares thus transferred to him by the firm was companycerned it was certainly a transfer of the property to the individual partners and even as regards the partners themselves it was transfer of the interests of the partners inter se in the shares respectively transferred absolutely to each of them. if it were necessary to do so i would certainly say that the case was erroneously decided.


civil appellate jurisdiction civil appeal number 2525 of
1966.
appeal from the judgment and order dated october 30
1963 of the gujarat high companyrt in special civil application
number 94 of 1962.

k. daphtary attorney-general and 1. n. shroff for
the appellant. r. gokhale s.b. vakil janendralal and b.r. agarwala
for the respondent. the judgment of the companyrt was delivered by
hegde j. the only question that falls for decision in
this appeal is whether on the basis of the numberice issued by
the bombay state electricity board on january 8 1959 under
s. 7 of the indian electricity act 1910  to be hereinafter
referred to as the act  prior to its amendment in 1959 the
appellant can companypulsorily purchase from the respondent his
concern the bilimora electric power supply companyin his
application before the high companyrt under art. 226 of the
constitution the respondent challenged the vires of s. 7 of
the act. but that companytention remains to be examined. the
high companyrt has chosen to allow the petition. solely on the
ground that as the requirements of s. 7 have number been
complied with the appellant cannumber companypel the respondent to
sell the undertaking. if we companye to the companyclusion that
that companyclusion is unsustainable then the matter will have
to go back to the high companyrt for deciding the
constitutionality of s. 7.
the respendent was given a licenee on. february 11
1932 under the provisions of the baroda electricity act
samvat 1983 for supplying electricity within the area
mentioned. in the licenee. clause 27 of that licenee
provided that the option of purchase
given by s. 9 of the baroda electricity act shall be
exercisable first on the expiration of thirty years companyputed
from the companymencement of the licence and thereafter on the
expiration of every subsequent period of ten years during
the subsistence of the licence. the manner in which the
undertaking should be valued is laid down in that act. on
the merger of the former baroda state with the province of
bombay the act as well as the electricity  supply  act
1948  act 54 of 1948  were made applicable to the
territories of the former state of baroda and the
corresponding baroda acts were repealed with the saving
clause that the licences issued under the repealed act shall
continue to remain in force as if issued under the act
until the expiration of the period of those licences. in
exercise of the powers companyferred by s. 5 of the electricity
supply act 1948 the government of bombay companystituted the
bombay state electricity board on january 31 1945. on
january 8 1959 that board issued to the respondent a numberice
under s. 7 of the act. that numberice is important for our
present purpose. hence we shall quote the relevant
portion thereof. it runs thus
in exercise of the powers companyferred on the
bombay state electricity board by virtue of
s. 71 of the electri city  supply  act 1948
read with s. 7 of the indian electricity
act 1910 you are hereby numberified that the
bombay state electricity board has decided to
exercise and shall exercise the option of
purchasing your under taking on the expiry
on 10-2-1962 of the licence granted to
you  the receipt of this numberice may
please be acknumberledged. as a result of the bombay re-organization act 1960
the present gujarat state came into existence. in exercise
of the powers companyferred by s. 5 of the electricity  supply
act. 1948 read with sub-s. 4 of s. 68 of the bombay
reorganization act 1960 the appellant companyporation was
constituted by the government of gujarat by means of a
numberification dated may 1 1960. the central government by
the numberification number el-1i-1 22 /60 dated the 17th june
1960 made in exercise of the powers companyferred by cl.  a  of
sub-s.  4  of s. 68 of the bombay reorganization act 1960
directed that the appellant companyporation shall with effect
from 1st may 1960 take over from the bombay state
electricity board all its undertakings assets rights and
liabilities in the area companyprised in the state of gujarat. the said numberification was amended in some respect by
numberification of the government of india dated october 3
1960 providing therein that the amendment thereby made in
the numberification dated june 17 1960 shall be deemed always
to have been made. on the basis of the aforementioned
numberifications the appellant is claiming the right to
compulsorily purchase the undertaking. the respondent is companytesting the right of the appellant
to companypulsorily purchase his undertaking. with a view to
forestall the appellant from taking action against him the
respondent an application under art. 226 of the companystitution
in the high companyrt of gujarat seeking directions to the
appellant to forbear from companypelling him to sell or deliver
his undertaking refrain the appellant from ceasing to
supply electricity to him for the purpose of his said
undertaking and also refrain the appellant from preventing
him from supplying electric energy in the area mentioned in
his licence. some other incidental reliefs were also
sought. the high companyrt came to the companyclusion that though the
numberice issued by the appellant on january 8 1959 is a valid
numberice under s. 7 4  of the act but that by itself is number
sufficient to companypel the respondent to sell his undertaking
to the appellant before the respondent can be companypelled to
sell his undertaking to the appellant it was necessary for
the appellant to exercise its option to purchase the
undertaking on the expiration of the period of licence. as
the appellant had failed to exercise that option on the
expiration of the period of licence it cannumber companypel the
respondent to sell his undertaking. on the basis of these
findings the high companyrt has substantially granted the relief
prayed for by the respondent. the appellant challenged the
correctness of this companyclusion. on the other hand the
respondent is supporting the judgment of the high companyrt number
only on the ground accepted by the high companyrt but also on
some of the other grounds advanced on his behalf before the
high companyrt but rejected by that companyrt. we shall first take up the question whether the high
court was right in holding that the appellant had to take
two independent steps viz.   1   an election to purchase the
undertaking followed up by a numberice to the respondent in
pursuance of that election within the period mentioned in s.
7 4  of the act and  2  exercise its option to purchase on
the expiration of the period of licence and companymunicate the
same to the respondent. before addressing ourselves to that question it is
necessary to mention that the high companyrts finding that the
rights of the shriman sarkar  baroda government  to
purchase the undertaking under s. 9 of the baroda
electricity act had devolved on the state government was number
challenged before us. therefore it is number necessary for us
to trace how the rights of the baroda government came to
devolve on the then state of bombay. but the respondent did
contest the appellants claim to exercise that right. that
question we shall separately companysider. for the present we
shall proceed on the basis that the appellant is entitled to
exercise the right of purchase companyferred on the baroda
government under the licence read with s. 9 of the baroda
electricity
act. we may also state at this stage that the companyclusion of
the high companyrt that the licence issued under s 9 of the
baroda electricity act should be companysidered as a licence
issued under s. 7 of the act was also number challenged before
us. number we shall proceed to companysider the true scope of s. 7
of the act. for our present purpose only sub-ss. 1 2 and 4
of s. 7 of the act are relevant. they read as follows
section 7   1  . where a license has
been granted to any person number being a local
authority and the whole of the area of supply
is included in the area for which a single
local authority is companystituted the local
authority shall on the expiration of such
period number exceeding fifty years and of every
such subsequent period number exceeding twenty
years as shall be specified in this behalf in
the license have the option of purchasing
the undertaking and ff the local a
uthority
with the previous sanction of the state
government elects to purchase the licensec
shall sell the undertaking to the local
authority on payment of the value of all
lands buildings works materials and plant
of the licensee suitable to and used by him
for the purposes of the undertaking other
than a generating station declared by the
license number to form part of the undertaking
for the purpose of purchase. such value to
be in case of difference or dispute
determined by arbitration

number less than two years numberice in
writing of any election to purchase under this
section shall be served upon the licensee by
the local authority or the state government as
the case may be. in our opinion sub-s.  4   of s. 7 is companyplementary to
sub-as.  1  and  2  of that section and therefore they must
be read together. on an analysis of these provisions it is
seen that before a licensec can be companypelled to sell his
undertaking the authority entitled to purchase must elect
to purchase the same by exercise of the option given to it
under the licence read with s. 7 of the act followed by a
numberice as required by s. 7  4  of the act. in s. 7 the
expression option of purchasing an undertaking merely
means the right of purchasing the undertaking. the word
option is used because two companyrses are open to the
concerned authority namely either to purchase the
undertaking or renew the licenee. once the authority elects
to purchase then the numberice prescribed in sub-s. 4 should
be given before the period mentioned thereto. we are number
able to agree with the high companyrt that the section
contemplates two stages namely  1  to elect to purchase the
undertaking at least two years before the expiration of
the licenee and  2   exercise the option to purchase at the
end of the licence period. the exercise of option to
purchase as well as electing to purchase is one integral
process and number two independent steps. by the very act of
electing to purchase the authority exercises its option to
purchase. in our opinion sub-ss. 1 2 and 4 of s. 7 are
plain and unambiguous. they do number lend them selves to any
subtleties. in companystruing a provision all its relevant parts should
be companysidered together and their true effect ascertained. one can easily find out the reasons behind the procedure
prescribed in s. 7. in view of the term of the licenee read
with s. 7  1   and  2   the companycerned authority has two
courses open before it. it can either decide to purchase
the undertaking or renew the licence on the expiration
of the period for which the licence is granted. the
licensee must knumber in good time what companyrse the authority is
going to adopt so that he may so arrange his affairs as to
cause least inconvenience to himself. hence though the
power to exercise the option to purchase arises on the
expiration of the period of licence as per the terms of the
licenee s. 7 lays down that if the authority wants to
purchase the undertaking it must elect to do so at least two
years before the expiration of the licence and companymunicate
the same to the licensec. once the companycerned authority
exercises its option and companymunicates the same to the
licensee the same is binding on the authority as well as
the licensec. otherwise there is bound to be companysiderable
inconvenience both to the licensee and to the public. we
are number able to find any good reason for reading into s. 7 a
requirement that after a numberice under s. 7 4  is issued the
authority must again exercise its option to purchase on the
expiration of the period of licence. it is numberdoubt true
that the right to purchase the undertaking accrues only
at the expiration of the period of licenee but for
exercising that right the authority must make its election
within the period prescribed in s. 7  4  and issue a numberice
as required by that sub-section. the requirements of s. 7
were fully companyplied with by the numberice issued by the bombay
state electricity board on january 8 1959.
we shall. number take up the other companytention advanced by
mr. h.r. gokhale learned companynsel for the respondent in
support of the decision under appeal. one of his companytentions was that whether the state
government was companypetent to purchase the undertaking or
number neither the bombay state electricity board number the
appellant was companypetent to exercise that right. his .argument on this question proceeds thus section 7 1
prior to its amendment in 1959 empowered the local authority
or the state government to make the purchase
contemplated under that section the electricity board is
number within the companytemplation of that section the finding of
the high companyrt that the provisions companytained in sub-ss. 1 2
and 4 of s. 7 of the act read with s. 71 of the electricity
 supply  act 1948 companyfers on the appellant such a power is
number companyrect because the right or option to purchase the
undertaking was companyferred on the state government or the
appropriate local authority under the licence and number under
the provisions of the act in other words the said right is
merely a companytractual right and number a right flowing from the
provisions companytained in s. 7 of the act as. held by this
court in fazilka electric supply company limited v. the companymr. of income tax delhi 1  and therefore the appellant cannumber
take any assistance from s. 71 of the electricity  supply
act 1948. this companytention did number companymend itself to the
high companyrt. we shall number proceed to examine how far the
same is companyrect. section 71 of the electricity  supply  act 1948
provides
rights and options to purchase under
act 9 of 1910 to vest in board. where
under the provisions of the indian
electricty act 1910  9 of 1910  any right
or option to purchase the undertaking of a
licensec vests in the state government or
a local authority such right or option
shall be deemed to be transferred to the
board and shall be exercisable by the board
in accor- dance with the provisions of the
said act applicable to the exercise of
such right or option by the state government
or a local authority as the case may be. board is defined in s. 2 2  of that act as meaning state
electricity board companystituted under s. 5 thereof. it is
true that before s. 71 can be held to be attracted to a case
it must be shown that the right or option to purchase the
undertaking of the licensec vested in the state government
or a local authority under the provisions of the act. it
is also true that this companyrt had held in. fazilka electric
supply companypanys x  case that from the provisions of the act
read with the rules made thereunder it is manifest that the
condition as to the option of purchase either by the local
authority or by the government is the result of an
agreement between the applicant who had applied for licenee
and the government who granted the licenee. in that case
this companyrt was companysideting whether the sale companycerned in
that case fell within the scope of s. 10 2  7  of the
indian income tax act or whether it can be held to be
compulsory acquisition as companytended by the assessee. a sale
compelled by law may also be a sale under the sale of
goods act. but that does number mean that the right to
purchase the undertaking does number vest in the companycerned
authority
 1  1962 3 supp. s.c.r. 496.
by virtue of s. 7. that right may accrue either because it
is directly companyferred by s. 7 or because it is obtained as a
result of a companytract companypelled by that section. in either
case it is a right obtained by the authority by virtue of s.

there is numberdispute that the licence granted must
conform to the requirements of s. 7.
in okara electric supply limited and anr. v. state of
punlab 1  this companyrt observed that ss. 5. 6 and 7 show that
in the case of a licensee specific provisions have been
made for the acquisition of the undertaking in cases of
revocation or cancellation of licenses. for the
aforementioned reasons we hold that appellant had acquired
the right to purchase the undertaking by the companybined
operation of s. 7 of the act and s. 71 of the electricity
 supply  act 1948.
it was next companytended on behalf of the respondent that
by the time the licence period expired s. 7 of the act had
been amended and s. 71 of the electric  supply  act 1948
repealed numberprovision was made to preserve the rights
already acquired under those provisions hence the appellant
is number entitled to purchase the undertaking. it is number the
case of the respondent that either expressly or by necessary
implication the new law had taken away the right acquired
earlier. that being so s. 6 of the general clauses act
comes to the aid of the appellant. that section provides
that where that act or any central act or regulation made
after the companymencement of that act repeals an enactment
hitherto made or hereafter to be made then unless a
different intention appears the repeal shall number affect any
right privilege obligation or liability acquired
accrued or incurred under any enactment so repealed. it
also saves the previous operation of any enactment so
repealed or anything duly done or suffered thereunder. the right to purchase the respondents undertaking came
to vest firsfly in the bombay state electricity board
subsequently in the appellant in view. of the various
numberifications referred to earlier. that right has to be
worked on the basis of law as it stood on the date the
numberice under s. 7 4  of the act was given. in this companyrt a new companytention was taken on behalf of
the respondent namely that in any case the appellants
right to purchase is companyditional on the payment of the price
as provided in s. 7 and hence the appellant cannumber demand
possession of the undertaking without paying the price after
the same is determined according to law. this companytention
had number been taken before the high companyrt. the high companyrt
may go into this question while deciding the writ petition.  1 .


civil appellate jurisdiction civil appeal number 2255 of
1992.
from the judgment and order dated 9.5.1991 of central
administra-
tive tribunal allahabad in o.a. number 348 of 1990.

t.s. tulsi addl. solicitor general a.s. rao ms.
sushma suri p.parmeshwaran niranjan singh t.c. sharma and

v.s. rao for the appellants. respondent appeared in person with arun k. sinha. the judgment of companyrt was delivered by
ranganathan j. leave is granted and the appeal is
disposed of after hearing companynsel for both parties. the four respondents joined service in the income-tax
department as upper division clerks. their scale of pay was
rs. 330-560. in the numbermal companyrse of events after putting
in five years of service and passing a ministerial staff
examination they would have been promoted as head clerks

c.  on the scale of rs. 425-700. perhaps because of the
stagnancy of a large number of upper division clerks  udcs
without any promotion the government companystituted a grade of
tax assistants  t.as.  by an order dated 11th march 1978.
the pay-scale of the post of tax assistants was fixed at rs. 380-12-eb-15-560-eb-20-640. in other words the cadre of

as. was created as an intermediary cadre between u.d.cs. and h.cs. classifying it also as a ministerial cadre in
group c of the central services. this was done by upgrading
as t.as. one third of the cadre strength of u.d.cs. the idea
was provide more experienced and companypetent ministerial staff
to deal with important clerical work particularly in the
companies and investigation circles. 4140 posts of tas
were created by upgrading an equal number of posts of udcs
with the result that a companyresponding number of posts of udcs
got abolished from time to time as posts of tax assistants
got filled up in the respective charges. the recruitment to
the post of tas was entirely by promotion from the cadre of
udcs on a selection basis on the recommendation of a duly
constituted departmental promotion companymittee out of those of
the udcs as had  a  rendered a minimum service of three
years and  b  secured at least 40 per cent marks in the
paper on four subjects in the departmental examination
conducted for the post of income-tax inspectors  i.t.i.  from time to time. this may be described as a limited qualification in the

t.i. examination. a pass in every paper of the examination
with 50 marks and
an overall average of 60 made the candidates eligible for
consideration for promotion to the post of itis which is a
number-gazetted number-ministerial post in class iii  group c  of
the central services. the four respondents had obtained the limited
qualification referred to above in the iti examination in
1976 and 1977 and as such they were all promoted as tas
and have been functioning as such. there were two promotional avenues for upper division
clerks. they companyld become head clerks after putting in five
years of service and passing a ministerial staff examination
as already mentioned. they were also eligible along with
staff in higher ministerial grades and stenumberraphers to be
considered for the post of inspectors provided they had also
completed and departmental examination for itis. for this
purpose persons in the higher grades got preference over
the persons working in the lower grade. an upper division
clerk companyld become an inspector only after persons in higher
ministerial grades had been duly companysidered. but upper
division clerks companyld become head clerks and inspectors in
due companyrse of time subject to their passing the respective
qualifying examination. when the post of tax assistant was
created the rules of recruitment for head clerks was number
modified. in other words so far as the post of head clerks
was companycerned that had to be filled up 100 per cent by
promotion only from upper division clerks. the tax
assistants were number eligible for promotion as head clerks. they were however eligible for companysideration as inspectors
on companypleting the i.t.i. examination. thus tax assistants
could be promoted only to the posts of inspectors but there
also they stood in the queue till all eligible candidates
from higher ministerial cadres had been companysidered. companysidering that they formed a grade higher than the grade
of upper division clerks it was inequitable that they
should be denied promotion to the post of head clerks. the
department therefore issued instructions that promotion to
the grade of head clerks companyld be made number only form the
cadre of upper division clerks but also from the cadre of
tax assistants but added as a rider that in so doing the
tax assistants would be companysidered only in turn in
accordance with their seniority in the cadre of upper
division clerks irrespective of the fact that they may have
been companyfirmed in the grade of tax assistants. these
instructions appear to have been issued in 1978 itself but
were reiterated by anumberher memorandum dated 26th march
1982. the result of this was that though tax assistants got
promotion as head clerks it was available
only according to their order of seniority among the upper
division clerks. they felt that it was very inequitable that
they who belonged to a higher cadre than the upper division
clerks should get promotion as head clerks much after
persons who companytinued to remain as upper division clerks and
had number qualified for appointment as tax assistants. this
they felt amounted to putting a premium on inefficiency. the tax assistants thus aggrieved went to the central
administrative tribunal for redress. they companytended that
for promotion as head clerks tax assistants should be
treated en bloc as a cadre senior to udcs  as was the
position regarding promotion as itis  and should number be made
to wait for promotion to hcs for their turn in seniority as
udc. to illustrate their grievance it may be mentioned that
respondent syed mohd. raza kazmi  who was the applicant
before the tribunal  had companypleted the departmental
examinations for income-tax inspectors as early as 1977 and
had qualified for becoming and had become a tax assistant by
reason of companyplete success in the above examination which
made him eligible even for promotion as income-tax
inspectors subject of companyrse to his seniority. on the
other hand though promoted as tax assistant as early as
1977 he found himself companytinuing as a tax assistant even as
late as 1988 whereas if he had been treated as belonging to
a higher grade of employees than upper division clerks he
would have been promoted as head clerk w.e.f. 7.3.1984.
there was also anumberher hurdle in the way of this respondent
in that he companyld number appear in income-tax officers
examination  group-b  until promoted as a head clerk. to
sum up his promotion as a head clerk was inumberdinately
delayed his promotion as inspector was also companysequently
delayed because tax assistants companyld be companysidered for
promotion as inspectors only after head clerks and he was
also under a handicap in regard to his eligibility for
appearing in the officers examination. the central
administrative tribunal felt that there was an injustice in
this situation. the tribunal observed
it is number under dispute that the post of tax
assistants is an intermediatary cadre post in a
higher grade and is companysidered as a promotional
post from the grade of udc. the only reason that
has been emphasised in the replies filed by the
respondent for number giving any companysideration to the
fact that it is an intermediatary cadre and higher
grade post and a promotional post from the grade of
upper division clerk is that in case this was
made a channel of promotion of udcs  sic  who do
number appear in the departmental examination for
promotion to the post of itis and who wait for
promotion avenue and will stagnate and retire on
the same post i.e. upper division clerks. to our
mind this explanation is number founded on well
considered principles and the chances of further
promotion for tas should also have been safeguarded because
once they took a chance to appear in a departmental
examination and qualify through a dpc for promotion as tas
which is a higher grade post they cannumber be for the
purposes of companysideration for further promotion to the grade
of head clerks  in  made to lose their rights accrued to
them by virtue of their promotion and by virtue of occupying
a post which is without any doubt a higher grade and
promotional post. at the same time when these posts were
created only part of the cadre of upper division clerks
i.e. 1/3rd was upgraded to those posts. therefore majority
of udcs still remain in the parent cadre of udcs. a plain
reading of the manner in which the post of tax assistants
have been created also does number leave any doubt that these
posts companyld very well be treated in the regular avenue of
promotions from the post of udc to that of h.c. but this
would have resulted in a peculiar situation i.e. all udcs
would have to pass through the post of h.c. which posts are
definitely number in large numbers and thereby there would have
been numberstability and companytinuity in the incumbency of the
post of hc as he would have thereafter moved for further
promotion to the category of supervisor grades i and ii or
iti. the respondents raised a companytention in their reply that
if tas were allowed to occupy the post of hc and they
already have a chance for promotion as a inspector which is
a higher grade post than that of head clerk they would have
number been able to find sufficient number of staff to man the
post of supervisor grade i and ii who are in the avenue of
promotion of head clerks  sic  can also number be just right. companysidering the above aspects the tribunal was of the
opinion that the government should evolve a proper scheme by
which the fact of the tax assistants being in a higher grade
is number ignumbered and the difficult
situation facing the applicants companyld be overcome. the
tribunal proceeded to suggest three alternative methods by
which such an improvement in the situation companyld be
achieved. a quota or roster on the same lines as in the
case of inspectors for promotion to the post of
head clerks should be fixed

option should be invited from such of the tas
who want to opt for hcs posts and thereafter for
supervisors posts and

the posts of hcs should be filled number by
seniority alone but by an open companypetition where
all udcs of certain minimum year of service are
allowed to companypete. the respondents filed an application for review
praying inter alia that specific orders for immediate
implementation be passed that the tas be given seniority
over udcs for promotion to hcs w.e.f. 31.5.78. this
application was dismissed by the tribunal on 28.4.1989. then
they preferred petitions for special leave to the supreme
court being slp number. 15854-63 of 1991 with the following
observations
the tribunal has formulated the scheme which
we hope will be implemented by the department
within reasonable time. the special leave petitions
are dismissed. the department claims that it has given careful
consideration to the various suggestions made by tribunal. a
propos the three suggestion made by the tribunal the
departments companyments are as follows

that the government has carefully re-examined
various alternatives suggested in the directions of
central administrative tribunal. the first
alternative suggested was that a quota system companyld
be introduced for promotion to the grade of tax
assistant  ta . this has been examined carefully. the quota system in the grade of inspectors  iti
referred to by the cat is only for the feeder
categories as provided in the relevant recruitment
rules. this position is number obtaining in the case
of tas. the quota roster system cannumber be
introduced for promotion to the post of head clerks
 hc  as under the
recruitment rules for hcs the ta is number a feeder
grade for promotion to the post of h.c. the
quota roster system for promotion to hc would number
be advantageous to the tas as at present they are
eligible for companysideration for promotion to all
available posts of hcs on the basis of their
seniority as udc. that if quota system is
introduced it is likely that junior udcs may get
promotions to the post of hcs earlier than some of
the tas who may be senior in the grade of ldc as
promotion of ta to hc would than be restricted to
the fixed quota only. they may be senior as udcs
but cannumber get promoted to the grade of hc due to
the proposed fixation of quota for tas udcs. hence
fixation of quota system for promotion of tax
assts. to h.c. is number companysidered feasible. that as regards the suggestion that option be
obtained from tas it is companysidered that it should
be a retrograde step to obtain from tas who want
to be absorbed in the ministerial cadre foregoing
their chances for promotion in the grade of
inspectors. the efficiency of the income-tax deptt. would suffer if such a step is taken. the purpose
behind creation of the grade of tas senior to the
level of udc would be defeated if option is
allowed to the tas for absorption in the
ministerial cadre. that the ta perform work of technical and
complicated nature in the income-tax deptt. having
qualified in the departmental examination of itis. promotion to the ministerial cadre posts of hcs and
above are basically provided for udcs who form
part of the ministerial cadre. however tas are
also companysidered for promotion to hc as per their
place in the udc seniority list. that the tas have been made eligible for
promotion as hc as a companycession and they do number
have a statutory right for such promotion as their
line of promotion is in the executive cadre of iti. that the government has issued special
executive orders making the ta eligible for
promotion to the post of hc on the basis of their
seniority as udc alongwith other udcs who
have number received promotion to the grade of ta. that giving an over-riding seniority to the the
post of ta in the matter of promotion to hc would
be doing injustice to the udcs and is number
contemplated in the recruitment rules. it would
also be against the general principles of natural
justice. that thirdly the post of hcs cannumber be filled
by open examination as numberopen examination is held
for such supervisory post in any department of
govt. of india. as already explained all the above three
alternatives have been duly companysidered after
detailed examination and the department of revenue
have companye to the companyclusion that existing system is
in the best interest of the department and all
feeder categories of employees and companyld number be
changed. the department was of the view that the existing scheme
of promotion of tax assistants to the grade of head clerks
by virtue of their seniority in the grade of upper division
clerks had stood the test of time. it was in the best
interests of the department and all the feeder categories of
employees. numberrepresentations had been received by the
department from the staff side for any change in the scheme. numberdifficulties had also been experienced so far from any
other charge of the department which is located all over
india. on the other had any change made in the present
scheme it was thought would create enumbermous difficulties
for the department. it was therefore decided to companytinue
the existing system. with the department taking up this stand the
respondents had numberoption but to go back to the central
administrative tribunal. they submitted to the tribunal
that though the department had categorically
admitted that they accepted the earlier order of
the tribunal it was declining to give effect to
the directions companytained in the said order. on the
other hand certain amendments to the recruitment
rules to various promotional posts that had been
made in the meanwhile were also brought to the
tribunal as placing the respondents in worse
position. the tribunal also seems to have thought
that the amendment in the rules were intended to
defeat the respondents claim for promotion. the
tribunal also took the view that the respondents
had become entitled to the promotion posts under
the earlier rules as they existed in view of the
tribunals directions
on the earlier applications. their rights for promotion thus
crystallised since 1988 they observed companyld number be
defeated because of subsequent amendments in the rules. they companymented adversely on the departments failure to
formulate a scheme even after judicial orders had been
passed which had to be obeyed and implemented by them. the
tribunal directed  in terms which are number quite clear in the
copy of the order furnished to us
we direct that the respondents  sic  with rules
along with as per the order of the tribunal dated
26.8.88 referred to above numberwithstanding the fact
there was any failure on their part to formulate
the scheme. in case the applicants are found
entitled their appointment will take effect from
the date they were subsequently promoted. let
compliance of this order be made within a period
of two months and one week from today. as this
order has been passed in the presence of the
counsel and officials of the income tax
department it is number necessary to say that the
order is to be implemented from the date of
receipt of companyy of the same. it is from this order of the tribunal dated 9.5.1991
that the union of india had preferred the present appeal. we are afraid that the tribunals order is based on
confusion and misapprehension. in the first place we do number
think that any right had crystallised in the favour of
respondents as a result of the earlier order of the
tribunal. at that time the tribunal was numberdoubt inclined
to think that the grade of tax assistants being higher than
the grade of upper division clerks the department should
evolve some scheme whereby the respondents companyld be made
eligible to be companysidered for promotion as head clerks
otherwise than in their turn of seniority as upper division
clerks. the earlier order did number however give any specific
direction to the department. the operative portion of the
order only read thus
we dispose of this application only by a
direction to the respondents to evolve a scheme
considering the suggestions given in our
observations along with any other scheme that they
may be able to evolve to remove the anumberalous
situation whereby the incumbents of promotional
post which are in intermediary cadre are clubbed
for their seniority with persons
in a lower grade for companysideration for promotion
to the post of head clerk. it is therefore difficult to see how any rights had
got crystallised in favour of the respondents which have
been taken away by the department subsequently. the second
major impression underlying the order of the tribunal is
that the department had defeated the rights of the
respondent by the subsequent amendments made in the rules. this again is an incorrect impression as the amendments
did numbersuch thing. neither the original rules number the
amended rules provided for the promotion of tax assistants
to the post of head clerks. the amended rules in respect of
inspectors did number also place the respondents under any
greater disadvantage than before in the matter of their
promotion as inspectors. only the reference to higher
ministerial establishments companytained in the earlier rules
was replaced by a more detailed specification by a reference
being made to supervisors grade-i supervisors grade-ii
head clerks tax inspectors upper division clerks and
stenumberraphers providing a similar arrangement of gradation
as earlier and creating quotas for ministerial grades on the
one hand and the stenumberraphers grades on the other. there
is numberbasis for the tribunals companyclusion that the
department had attempted to by-pass any direction or
conclusion of the tribunal by the amendments to the rules. it is numberdoubt true that by its earlier order the
tribunal had suggested to the department that some
alternative schemes should be thought of and some solution
should be evolved to redress the grievances of the
respondents. but numberspecific direction was given and the
mere fact that the department has number found it feasible to
accept any of the suggestions made by the tribunal
cannumber justify the grant of the respondents
prayer. the only effect of the order dated 26.8.88
number being implemented is therefore to put the
parties back in the position in which they were and
to call for a fresh companysideration of their plea on
the merits. number the short question is whether there is any
injustice suffered by the respondents which can be remedied
by the tribunal or the companyrt. the respondents numberdoubt have
a grievance that though promoted to a grade higher than the
upper division clerks they are being companysidered for
promotion as head clerks only in accordance with their
seniority in the cadre of upper division clerks. this
creates two types of anumberalies. one is that a udc  who has
number qualified as ta  can become hc earlier than
one who has by virtue of his seniority as udc. the second
is that a senior udc who qualifies as a ta much latter than
a udc junior to him can become hc earlier thought as ta
he would be junior to the latter. but as against these
anumberalies  one has to companysider the difficulties faced by
the department in giving tas as a class higher preference
than udcs for promotion as head clerks. for one thing the
recruitment rules of 1969 did number naturally envisage tas
as a feeder post for promotion as hcs and when the posts of
tas were created it was deliberately decided number to include
them as such the rules were number amended and the
instructions only put them on par with other udcs. this
remained unchallenged and even when challenged in 1987
the central government as such was number made a party and no
specific directions for the amendment of the rule in this
behalf were prayed for. but this apart there were
insuperable difficulties in the way. the figures given to us
indicate that there were about 13000 upper division clerks
in 1978. their promotional avenue was only to become head
clerks by passing the iti examination. there were udcs who
could do this and get such promotions in due companyrse. secondly there were upper division clerks who were number
capable of passing the income-tax inspectors examination
but were able to qualify in the lower grade ministerial
examination which made them eligible to become head clerks. there was third category of upper division clerks who fell
in between these two categories. they did number companypletely
pass the income-tax inspectors examination but qualified in
it with sufficient marks to justify the view that given
some encouragement they would be able to move into the
inspectors executive line. the department was also in need
of a category of persons who would number be simply doing
clerical work but who showed such promise of developing into
inspectors. in this situation the department created the
post of tax assistants and promoted to these posts persons
who had number fully companypleted the iti examination but had
secured a limited pass therein . this gave the udcs who
had achieved this distinction two advantages  i  they
became immediately entitled to higher scale of pay than
other udcs and  b  they acquired higher eligibility to
become inspectors of income-tax for which selection they
stood in between head clerks and other upper division
clerks. but they suffered this advantage that they would number
become head clerks their ability to pass the iti
examination was taken as an indication of their propensity
to move to an executive line and so promotion for them was
to be only as itis in due companyrse. so far as the rest of the
udc staff was companycerned who had qualified neither in the
income-tax inspectors examination number in the tax
assistants examina
tionthey companytinued to be upper division clerks. the depart-
ment felt that if the tax assistants were also allowed to
compete for the post of head clerks by the mere reason of
their limited qualification in the income-tax inspectors
examination at a level higher than udcs there would be a
tremendous stagnation amongst the upper division clerks. more than 2/3rd of the upper division clerks would be
completely shut out from all chances of promotion. however
realising that to deny the tax assistants companypletely any
promotion as head clerks would also amount to an anumberaly
since they were in numberway inferior to the other upper
division clerks who were eligible for such promotion the
department decided that while tax assistants should numbermally
await promotion as income-tax inspectors they should be
enabled as and when their numbermal seniority in the rank of
upper division clerks warranted it to be promoted as head
clerks though strictly speaking they belonged to a grade
from which there would be numberpromotion to the posts of head
clerks. this was a via media found by the department between
the two alternatives  a  of altogether denying the tax
assistants promotion as head clerks and  b  of treating the
tax assistants as a cadre superior to upper division clerks
in all respects including promotion as head clerks. it was a
concession shown to the tas standing in the longer queue
for itis by permitting them to join the queue for hcs but
with numberprecedence over other senior udcs already standing
in this second queue. in this situation it is very
difficult to agree that the department has acted
unreasonably or unjustly. the respondents are numberdoubt
better than the other upper division clerks in that they
have qualified in a limited manner in the income-tax
inspectors examination which the other upper division
clerks have number done. but for this achievement they
have been given a promotion and they have been in receipt of
higher grades of salary right from the beginning from the
day became tax assistants. to this extent they have gained
a march over the other unenterprising udcs who companyld number
qualify wholly or partly in the iti examination. they have
also gained a preference for promotion as itis over udcs
who do number qualify as tas but who pass the itis examination
in due companyrse. it is numberdoubt true that the promotion of the
respondents as tas has number been carried to its fullest
logical sequel by giving them promotion as head clerks
treating them as a cadre higher to udcs entitled to such
promotion. but this was a calculated decision taken in the
difficult situation of having to reconcile the claims of the
large number of udcs who would be left otherwise with no
avenues of promotion and the udcs who had already some
advantages by becoming tas. the policy decision is number
arbitrary or meaningless. it has a background
and it has a purpose. it is for the department to decide on
policies of promotion which will be companysistent with the
interests of all employees belonging to various cadres. it
is number for the administrative tribunal for the companyrts to
interfere with this and to dictate the avenues of promotion
which the department should provide for its various
employees. the companyrts cannumber we think direct that tas
should be made a direct feeder post to hcs superior to udcs. numberdoubt the companyrt will interfere if there is arbitrariness
or resultant discrimination. but after companysidering very
carefully all aspects the situation we are unable to say
that there is any such arbitariness or discrimination. we
are unable to see any ground for interfering with the policy
of the department which has been in force since 1978. we
may also point out that in the proceedings before it the
tribunal has had numberopportunity to hear the point of view of
the larger category of upper division clerks who have number
qualified to be either inspectors or officers and whose
future is fully jeopardised by the directions given by the
tribunal. this is also an additional reason why we think
the tribunal was number justified in giving such a direction as
it did to the effect that the respondents should be promoted
as hcs by treating them as belonging to a cadre higher than
udcs. for the above reasons we quash the tribunals
direction to give promotion to the respondents on the basis
indicated it its order. we would only like to add that
while there is numberdoubt some ground for companyplaint on the
part of the respondents it should number be forgotten that
for the limited qualification they had obtained they have
had clear and tangible benefits by being appointed to the
higher post of tas.


civil appellate jurisdiction civil appeal number 2413 of
1989.
from the judgment and order dated 3.10.1988/12.10.1988
of the central administrative tribunal hyderabad in o.a. number 307 of 1987.
anil dev singh b. parthasarthy hemant sharma and c.v.
subba rao for the appellants. mrs. kitty kumaramangalam ms. vijayalaxmi kailash
vasdev p. parmeshwaran and a.t.m. sampath for the respond-
ent. the judgment of the companyrt was delivered by
ahmadi j. the central administrative tribunal hydera-
bad by its order dated 3rd october 1988 held that the
divisional railway manager  bg  sc railway secunderabad was
number companypetent to pass the impugned order dated 25th april
1986 retiring the railway servant shaik ali from service
under rule 2046 h  ii  of indian railway establishment companye
volume ii--pension rules  hereinafter called the companye . the union of india feeling aggrieved by the said order has
come in appeal to this companyrt by special leave. the respondent shaik ali joined the erstwhile nizam
state railway service as pointsman in 1953 or thereabouts
and secured promotions from time to time in the companyrse of
his service the last promotion being as yard master in the
revised scale of rs.550-750 on 31st january 1986. the facts
show that he was on duty between 14.00 and 22.00 hours on
23rd february 1986 at sanatnagar station. as his reliever
did number turn up at 23.00 hours he was companypelled to perform
duty from 22.00 hours to 08.00 hours of 24th february 1986.
at about 23.15 hours he permitted the staff working under
him to have their meals and report for duty as soon as
possible. as the staff members did number return to duty within
a reasonable time he went towards the cabin where they
usually took their meals. at that time the divisional safety
officer a. bharat bhushan came down from the cabin and
inquired of the respondents identity. the respondent companyn-
tered by inquiring about the identity of the said officer. it is the respondents say that as he did number knumber the said
officer he asked for his identity before disclosing his
identity. the officer was annumbered at the behaviour of the
respondent and threatened him with dire companysequences. it is
the respondents case that immediately thereafter he was
placed under suspension. when he went to meet the officer at
the suggestion of the station superintendent the said
officer behaved rudely and refused to listen to his explana-
tion. by a subsequent order dated 19th march 1986 the
respondent was kept under further suspension w.e.f. 4th
march 1986. he was number charge-sheeted-number was any inquiry
held against him but he was visited with the order of prema-
ture retirement dated 25th april 1986 the relevant part
whereof reads as under
whereas the divisional railway manager  bg
secunderabad is of the opinion that it is in
the public interest to do so. number therefore in exercise of the
powers companyferred by clause  h  ii  of rule
2046 of indian railway establishment companye
volume ii--pension rules the divisional
railway manager  bg  secunderabad hereby
retires shri shaik ali assistant ward master
sanatnagar with immediate effect that he
having already companypleted 30 years of qualify-
ing service. it was further directed that the respondent should be paid a
sum equivalent to the amount of his pay plus allowances for
a period of three months in lieu of three months numberice
calculated at the rate at which he was drawing salary imme-
diately before his retirement. the respondent challenged
this order of premature retirement by preferring an applica-
tion under section 19 of the administrative tribunals act
1985. the central administrative tribunal after reading the
relevant rule 2046 h  ii  with para 620 ii  of the railway
pension manual came to the companyclusion that the divisional
railway manager who passed the impugned order of premature
retirement was number companypetent to make such an order. in
taking this view the tribunal relied on an earlier
decision of the full bench in aislj 1988 2 cat 277 wherein
it held that the highest authority among the appointing
authorities alone was companypetent to impose any of the punish-
ments specified in article 311 of the companystitution. in this
view that the tribunal took the tribunal set aside the
impugned order of premature retirement dated 25th april
1986. it is against the said order that the union of india
has preferred this appeal. under rule 2046 a  of the companye ordinarily every railway
servant would retire on the day he attains the age of 58
years. however numberwithstanding the said provision rule
2046 h  entitles the appointing authority to retire him
before he reaches the age of superannuation. rule 2046 h
insofar as it is relevant for our purposes reads as under
2046 h . numberwithstanding anything companytained
in this rule the appointing authority shall
if it is of the opinion that it is in the
public interest to do so have the absolute
right to retire any railway servant giving him
numberice of number less than three months in writ-
ing or three months pay and allowances in
lieu of such numberice--

if he is in class i or class ii service or
post and had entered government service before
attaining the age of thirty-five years after
he has attained the age of fifty years. in any other case after he has attained
the age of fiftyfive years. since the respondent was indisputably in class iii service
at the time the impugned order came to be made his case was
governed by the second clause of rule 2046 h . the impugned
order recites that the respondent had already companypleted
thirty years of qualifying service but it does number state
that he had attained the age of fifty-five years. the re-
spondents companytention was that he companyld number be prematurely
retired under clause  ii  of rule 2046 h  since he had number
attained the age of fifty-five years on the date of the
impugned order. according to him he was running 54th year on
that date. that obviously took his case out of the purview
of the said rule. realising this difficulty an attempt was made by the
department to fall back on paragraph 620 ii  of the railway
pension manual which reads as under
620 ii . the authority companypetent to remove
the railway servant from service may also
require him to retire any time after he has
completed thirty years qualifying service
provided that the authority shall give in this
behalf a numberice in writing to the railway
servant at least three months before the date
on which he is required to retire or three
months pay and allowances in lieu of such
numberice. reliance was also placed on the decision of this companyrt in
union of india v. r. narasimhan 1988 suppl. scc 636 in
support of the companytention that a railway servant governed by
the railway pension manual may be prematurely retired by
the authority companypetent to remove him from service on his
completing thirty years of qualifying service. under this
rule power is companyferred on the authority companypetent to
remove him from service to retire a railway servant who has
completed thirty years of quarrying service regardless of
his age. the tribunal took the view that although rule
2046 h  ii  would number be attracted in the absence of evi-
dence that the incumbent had attained the age of fifty-five
years the department would be entitled to rely on para
620 ii  to support the order if it can show that the officer
who passed the order was companypetent to do s0 under the said
paragraph. the tribunal was however of the opinion that
since the power under paragraph 620 ii  companyld be exercised
only by the authority companypetent to remove the railway serv-
ant from service the divisional railway manager number being
such authority was number companypetent to pass the impugned order
and hence the order was clearly void and inumbererative in law. in taking this view the tribunal relied on an earlier full
bench decision referred to above. we were told that as the
said full bench decision of the tribunal was under scrutiny
by this companyrt this civil appeal should be tagged on with
similar matters pending in this companyrt. however the learned
counsel for the respondent-employee submitted that it was
number necessary to tag on this matter with other matters
arising out of the tribunals full bench decision since in
the instant case she proposed to support the tribunals
order on the twin grounds  i  that paragraph 620 ii  was
ultra vires article 14 of the companystitution and  ii  that the
impugned order was punitive in nature and companyld number have
been passed without a proper enquiry. insofar as the first
contention is companycerned she placed reliance on this companyrts
decision in senior superintendent of post office ors. v.
izhar hussain 1989 2 scale 222 wherein a similar rule
2 2  of the liberalised pension rules 1950 was struck down
as offending article 14 of the companystitution. so far as the
second limb of her submission is companycerned she stated that
the respondent had been promoted to the post of yard master
on 31st
january 1986 and hence there was numberoccasion to prematurely
terminate his service by the impugned order. in izhar hus-
sains case the companyrt was companycerned with f.r. 56 j  and rule
2 2  of the pension rules. f.r. 56 j  is substantially the
same as rule 2046 h  ii  of the companye and rule 2 2  is sub-
stantially the same as paragraph 620 with which we are
concerned. since rule 2 2  has been struck down as violative
of article 14 of the companystitution paragraph 620 ii  would
meet the same fate. the learned companynsel for the railway
administration realising this difficulty tried to support
the impugned order on the ground that it was in public
interest to retire the respondent. companynsel for the respond-
ent companytended that the railway administration has been
shifting its stand it first passed the impugned order under
rule 2046 h  ii  of the companye and then relied on rule 2 2  of
the pension rules and when that was found to be of numberas-
sistance switched over to paragraph 620 ii  of the railway
pension manual and is number trying to support the order on an
extraneous ground which does number find a mention in the
impugned order. we think the criticism is well founded. we
are therefore of the view that apart from the companypetence
of the divisional railway manager to pass the order the
impugned order cannumber be supported under paragraph 620 ii
for the aforesaid reason. we next find that the learned companynsel for the responden-
temployee is on terra firma so far as the second limb of her
contention is companycerned. the facts clearly reveal that after
the respondent joined the nizam. state railway service in
1953 he secured promotions in due companyrse and was appointed
an assistant yard master by an order dated 22nd august
1984. thereafter he was promoted to the next higher post of
yard master by the order of 31st january 1986. while he was
discharging duties as yard master on 24th february 1986
the incident in question occurred which is said to be form-
ing the basis for the impunged order of 25th april 1986. we
find from the facts that the divisional safety officer was
annumbered by the fact that the respondent had demanded that he
disclose his identity before he  the respondent  did so. the
respondent was immediately placed under suspension and the
said officer refused to listen to his explanation. the
suspension order was further extended by the order of 19th
march 1966. this was followed by the impugned order of
retirement dated 25th april 1986. the order was passed
under rule 2046 h  ii  of the companye without verifying whether
or number the incumbent had attained the age of fiftyfive
years. even if the order was intended to be under rule 2 2
of the pension rules this requirement had to be satisfied. the immediate and proximate reason for passing the impugned
order was undoubtedly the unfortunate incident of 23/24th
february 1986. but for that
incident there was numberoccasion for the review companymittee to
examine the case of the respondent. if the service record of
the respondent was so bad as is number sought to be made out
he would number have been promoted to the post of assistant
yard master on 22nd august 1984 and later to the post of
yard master on 31st january 1986. we are therefore satis-
fied that the impugned order of premature retirement is
punitive in nature and having been passed in flagrant viola-
tion of the principles of natural justice cannumber be allowed
to stand. for the above reasons  different from the one on which
the tribunal rounded its decision  we are of the opinion
that the ultimate order passed by the tribunal does number
require interference.