civil appellate jurisdiction civil appeals number. 149 and 150
of 1961.
appeals from the judgment and order dated september 23
1968 of the bombay high companyrt in i.t.r. number 86 of the 1957.

j. kolah j. b. dadachanji o. c. mathur and ravinder
narain for the appellants. n. rajagopala sastri and d. gupta for the respondent. 1962 february 19. the judgment of the companyrt was delivered
by. k. das j.-these are two appeals on a certificate of
fitness granted by the high companyrt of judicature at bombay
under. 66a 2  of the indian income-tax act 1922. the
relevant facts which have given rise to them are shortly
stated below. the indore malwa united mills a limited liability companypany
is the appellant before us and will be- -referred to in this
judgment as the assessee companypany. the respondent is the
commissioner of income-tax central  bombay. the assessee
company carried on a business of manufacture and sale of
textile goods. the manufacture was made at its mills in
indore which was indian state before integration and had its
own law as to income-tax knumbern as the indore industrial tax
rules 1927. the sales of textile goods were made at
various places some inside and some outside the taxable
territories of british india. for and upto the assessment
year 1949-50 the assessee companypany was treated as a number-
resident within the meaning of s.4a of the indian income-tax
act 1922. for the assessment years 19-50-51 and 1951-52
which are two assessment years under companysideration the
account years were the calendar years 1946 and 1950 respec-
tively. indore became a part of the taxable territories
within the meaning of the indian income. tax act is the two
assessment years and the assessee companypany was held to be
resident and ordinarily resident with the meaning of that
act. upto the assessment year 1949-50 that part of its
profits which was received in british india was subjected to
tax together with its other income which accrued in british
india namely interest on securities and interest on bank
accounts. in the assessments made for the assessment years
1948-49 and 1919-50 the
position of the assessee companypany was stated to be as
follows
1948-49
income tinder the head interest on
securities  rs. 1032
income under the head other sources
interest from banks  rs. 231
-----------
rs 1263
business loss rs. 1992/-. balance of lossrs. 729/-
carried forward. 1949-50
interest on securities  rs. 1023
bank interest  rs. 2 13
---------
rs.1236
less loss of 1948-49 set off  rs. 729
---------
total income  rs. 507
in making the calculation of business profits or loss
received or arising in the taxable territories a proportion
was struck between the total turn-over of the assessee
company and its sales the proceeds whereof were received in
the taxable territories. the following table which is part
of the order of assessment of 1950-51 shows clearly how the
calculation was made. 1 2 3 4 5
rs. rs. rs. rs. -----------------------------------------------------------
net profit deprecia- busi- total
of the as per ness turnumberer
assess- companypany the indian income of the
ment befor al- income- of the companypany
year lowance tax act company-
of depre- pany
ciation  company.2
minus
col.3
6 7 8 9
rs. rs. rs. rs. -----------------------------------------------------------
sales for business profit other total in
which companysidered as income companye for
proceeds having been accruing the prupose
were received in the in the of assess-
received taxable terri- taxable ment under
in the tories by appor- terri- the indian
taxable tioning the tories icome-tax
territories amount in act.  company.8
col. 4 in the
proportion of
col 5 company.6
daring the companyrse of the assessment proceedings for 1950-51
the assessee companypany claimed that it was entitled to a set
off of the entire losses of the assessment year 1948-49
which it was companymon ground before the tribunal came to rs. 519590/- and number merely the proportionate loss. the
assessee companypany also claimed that the depreciation
allowances of the two years 1948-49 and 1949-50 to which
effect companyld number be given in those years and which had
therefore to be carried forward should be added to the
depreciation allowance of 1950-51 and be set off against the
profits and gains of the assessee companypany liable to
assessment in the assessment years in question. it is to be
numbered that the assessment of the assessee companypany for the
assessment years 1948-49 and 1949-50 was made both under the
indian income-tax act and under the indore industrial tax
rules 1927. number the assessee companypany made two claims in
the companyrse of the assessment proceedings for 1950-51. one
was with regard to the loss of rs. 519590/- and the
assessee companypanys companytention was that it was entitled to
set off this loss against the profits made in its business
in that year and it also companytended that it was entitled to
carry forward the unabsorbed depreciation into that year. the first companytention of the assessee companypany was rejected by
the tribunal but the second was allowed. two questions were
then raised one at the instance of the assessee companypany and
the other at the instance of the companymissioner dealing with
the aforesaid two claims of the asseessee companypany. these
two questions were

whether the loss of rs. 519590/- of the
year 1948-49 is liable to be set off against
the assessees business income for the assess-
ment years 1950-51 and 1951-52 ? whether the unabsorbed depreciation of
the years 1948-49 and 1949-50 is liable to
be set off against the income of the assessee
for the eassessment years 1950-51 and 1951-
52.
on being satisfied that aforesaid two questions arose out of
its order the income-tax appellate tribunal bombay bench
a referred them to the high companyrt of bombay under s 66 1
of the indian income-tax act. the high companyrt answered the
first question against the assessee companypany and the second
question in its favour by its judgment and order dated
september 231958. the assessee companypany then moved the
high companyrt for a certificate under s. 66a 2  of the indian
income-tax act with regard to the answer given by the high
court to the first question and having obtained a
certificate of fitness has preferred the two appeals to this
court. we are companycerned in these two appeals with the
correctness or otherwise of the answer given by the high
court to the first question the second question does number
fall for our companysideration. on behalf of the assessee companypany s. 24 2  of the indian
income-tax act has been relied on in support of the claim
that the assessee companypany is entitled to carry forward and
set off the entire loss of rs. 519590/- incurred in the
year 1948-49 against the assessee companypanys business income
for the assessment years 1950-51 and 1951-52. mr. kolah
appearing on behalf of the assessee companypany has put his
argument in the following way. first of all he has
submitted that the income-tax officer wrongly proceeded on
the footing as though the assessee companypany was carrying on
two separate businesses one within the taxable territories
and the other outside them. mr. kolah has companytended that
the business was one business within the meaning of s. 10 of
the indian income-tax act and in the two assessment years in
question indore having become a part of the taxable terri-
tories provisions in sub-s.  2  of s. 24 came into
operation therefore the losses which the assessee
company sustained in 1948-49 being a previous year number
earlier than the previous year mentioned in the sub-section
and the losses number having been set off under sub-s. 1  of s.
24 the assessee companypany was entitled to carry forward the
losses and set them off against the profits and gains of the
assessee companypany from the same business under any other
head as the time limit of six years had number expired. as
against this argument the companytention on behalf of the
respondent has been that s-24 has numberapplication in the
facts of the present case inasmuch as in the year 1948-49 in
which year the losses had occurred the assessee companypany was
treated as a numberresident. on behalf of the respondent it
has been submitted that the provisions of s. 24 are
applicable only to profits and agains which are assessable
under the indian income-tax act and in the case of number-
residents who were assessees in british india or in the
taxable territories. the claim to set off is only allowable
in respect of loss of profits or gains incurred by the
numberresidents under any of the heads mentioned in s. 6 and
s. 24 is applicable only to such loss of profits arid gains
which if they had been profits and gains would have been
assessable in british india or the taxable territories.it is
contended that in the case of numberresidents income accruing
or arising without british india or without taxable
territories is number liable to be assessed and the loss of
such profits and gains is number companytemplated to be set off
within the provisions of sub-ss.  1  and  2  of s. 24 of the
indian incometax act. before we companysider these companytentions it is necessary to set
out the material provisions of the indian income-tax act as
they stood at the relevant time. 14.  1  subject to the provisions of this
act the total income of any previous year of
any person includes all income profits and
gains from whatever source derived
which-
 a  are received or deemed to be received in
british india in such year by or on behalf of
such person or
 b  x x x x
 e  if such person is number resident in
british india during such year accrue or
arise or are deemed to accrue or arise to him
in british india during such year
x x x
14  1  x xx

the tax shall number be payable by an
assessee-
 a  x x x
 b  x x x
 c  in respect of any income profits or
gains accruing or arising to him within an
indian state unless such income profits or
gains are received or deemed to be received in
or are brought into british india in the pre-
vious year by or on behalf of the assessee or
are assessable under section 12b or section
42. 24.  1  where any assessee sustains loss of profits or
gains in any year under any of the heads mentioned in
section 6 he shall be entitled to have the amount of the
loss set off against his income profits or gains under any
other head in that year
provided that where the lose sustained is a loss of profits
or gains which would but for the loss have accrued or arisen
within an indian state and would under the provisions of
clause  c  of subsection  2  of section 14 have been
exempted from tax such loss shall number be set off except
against profits or gains accruing or arising within an
indian
state and exempt from tax under the said provisions. x x x

where any assessee sustains a loss of profit or gains
in any year being a previous year number earlier than the
previous year for the assessment for the year ending on the
31st day of march 1940 under the head profits and gains
of business profession or vocation and the lose cannumber be
wholly set off under sub-section  1  the portion number so set
off shall be carried forward to the following year and set
off against the profits and gains if any of the assessee
from the same business profession or vocation for that
year and if it cannumber be wholly so set off the amount of
loss number so set off shall be carried forward to the follow-
ing year and so on but numberloss shall be so carried forward
for more than six years
provided that-

where the loss sustained is a loss of profits and gains
of a business profession or vocation to which the first
proviso to sub-section  1  is applicable and the profits and
gains of that business profession or vocation are under
the provisions of clause  c  of sub-section  2  of section
14 exempt from tax such loss shall number be set off except
against profits and gains accruing or arising in an indian
state from the same business profession or vocation and
exempt from tax under the said provisions

where depreciation allowance is under clause  b  of
proviso to clause  vi  of sub-section of section 10 also to
be carried forward effect shall be given to the provisions
of this sub-section
x x x
it may perhaps be stated here that mr. kolah has placed no
reliance on the provisions of the taxation laws  part b
states   removal of
difficulties  order 1950. clause 3 of the said order
provides that losses suffered in indian states can be
carried forward and set off only if under the state law they
could be so carried forward or set off. admittedly under
the indore industrial tax rules 1927 there was numberprovision
for the carrying forward of losses therefore cl. 3 of-the
taxation laws  part b states  removal of difficulties
order 1950 was of numberassistance to the assessee companypany. this view of the high companyrt has number been companytested before us
and we need therefore make numberfurther reference to this
aspect of the case. the answer to the question which we have to companysider depends
on the true scope and effect of s. 24 of the indian income-
tax act. under the indian income-tax act 1922 assessees
are divided into three categories  a  resident and
ordinarily resident  b  resident but number ordinarily
resident and  c  number resident. we are companycerned in the
present case with an assessee who in the year in which the
loss which is sought to be carried forward occurred was a
numberresident. sub-section  1  of s.4 the material portion
of which we have quoted earlier states that person who are
number resident in india ire liable to charge under cl.  a  or
cl.  c  of the said subsection. they may be taxed under cl.  a  on income received or deemed to be received in india
even if it accrues elsewhere or under on income which
accrues or arises or is deemed to companyue or arise in india
even if it is received elsehere. the liability to tax in
respect of income received in india is companymon to both
residents and number-residents and is imposed by the general
clause  a . a number-resident unlike a resident is number
argeable in respect of income accruing or arising without
india and number received in india. section 4 2   c  which is
number deleted had great importance when british india was
distinct from indian states because it exempted income
which accrued
or was received in the indian states but was number brought
into british india. the deletion of this clause became
inevitable uponthe merger of the indian states. this
clause which wan inserted in 1941 exempted income accruing
or arising within the indian states but the exemption did
number apply if the income was received or deemed to be
received in or was brought into the taxable territories in
the previous year by or on behalf of the assessee or if the
income was assessable under s. 128 or s. 42. the position
therefore was that losses made in british india companyld number
be reduced by adjusting against them the profits in the
indian states which were exempted under the clause but the
income exempted from the clause had however to be
included in the assessees total income for the purpose of
determining the rate applicable to his taxable income. but
so far as a number-resident was companycerned the clause had no
application because a numberresident was number chargeable in
respect of income accruing or arising without india and number
received in india. number we companye to s. 24 sub ss.  1  and
 2  with the provisos appended thereto which we have quoted
earlier in this judgment. it appears that prior to 1950
profits accruing in the indian states later called part b
states were exempt from tax under s. 14 2  c  unless they
were received in or brought into the territories then
referred to as british india or were assessable under s. 128
or s. 42. the first proviso to sub-s. 1  as it stood at the
relevant time dealt with losses accruing in the qaondam
indian states and provided that losses incurred in the
indian states should be set off only against profits
accruing in the indian states. this was a reasonable
provision because an assessee who was number liable to tax in
respect of his profits arising in the indian states companyld
number be allowed to set off his losses incurred in the indian
states against his profits arising in british india. that
losses incurred in an indian state companyld be similarly
cl.  a  of the provision to sub-s. 2  enacted that losses
incurred in an indian state companyld be
carried forward and set off only against profits accruing in
an indian state from the same business in a subsequent year. the -argument on behalf of the respondent is that so far as
a number-resident is companycerned he is number chargeable in respect
of income accruing or arising without india and number received
in india. therefore in his case it is unnecessary to go to
the provisos but s. 24 itself has numberapplication because
sub-s.  1  of s. 24 when it refers to loss of profits or
gains has reference to taxable profits or taxable gains and
sub-s. 2  of s. 24 can only be applied in a case where the
loss cannumber be set off under sub-s. 1  because of the
absence or inadequacy of profits etc. in other words the
argument is that s. 24 is applicable only to such loss of
profits and gains which if they had been profits and gains
would have been assessable in british india or the taxable
territories but in the case of numberresidents income
accruing or arising without british india or without the
taxable territories number being liable to be assessed the
loss of such profits and gains is number companytemplated to be set
off within the provisions of s. .24 sub-ss.  1  and  2 . mr. kolah has pointed out that sub-s. 2  of s. 24 as also
sub-s. 1  talk of any assessee and he has argued that
there is numberreason why the provisions of sub-s. 2  of s. 24
should number the applicable to a number-resident assessee. he
has further argued that whatever might have been the effect
of the provisos in 1948-49 in 1950-51 indore became part of
the taxable territories and the assessee companypany became
entitled to carry forward the losses up to six years and
there is numberhing in s. 24 2  to prevent him from making the
claim. we are unable to accept this argument as companyrect. reading the provisions in s. 24 with the provisions in
s.4 1  a  -and s. 1.4 2  c  it seems clear to us that s.
 24  1  when it talks of profits or gains has reference to
taxable profits or taxable gains in other words it has
reference to such profits and gains as would have been
assessable in british india or the taxable territories.


civil appellate jurisdiction civil appeal number 521 of
1971.
appeal by special leave from the judgment and order
dated the 20-9-1969 of the madhya pradesh high companyrt in
miscellaneous petition number 127 of 1966.
ram panjwani advocate general  dy.  madhya pradesh h.

parihar and i. n. shroff for the appellants. p. rao and s. p. nayar for respondent number 2.
the judgment of the companyrt was delivered by
fazal ali j.-this is an appeal by special leave by the
state of madhya pradesh against the judgment of the madhya
pradesh high companyrt dated september 20 1969 by which the
final gradation list of seniority of certain officers
prepared by the government following the integration of the
madhya pradesh state after merging the erstwhile states of
maha koshal madhya bharat vindhya pradesh and bhopal has
been partly quashed. the respondent in whose favour the high
court decided the case is already dead and has therefore no
interest in the result of the proceedings. but as the
gradation list has been struck down by the high companyrt the
government as also the officers who had been given a
particular seniority are undoubtedly affected by the order
of the high companyrt. that is why both the state of madhya
pradesh and the union of india have pressed this appeal. the facts of the case lie within a very narrow companypass. in 1938 the respondent rameshwar prasad was recruited as
excise sub-inspector by the then government of c.p. berar. on june 1 1947 the sales tax act came into force in the
erstwhile state of maha koshal and in 1948 the respondent
was promoted as assistant district excise officer and
assistant sales tax officer in the maha koshal region. in
1949 the states of vindhya pradesh and madhya bharat were
formed. on april 1 1950 the sales tax act came into force
in vindhya pradesh and a month later i.e. on may 1 1950
the sales tax act was enforced in madhya bharat. thereafter
in accordance with the report given by the states
reorganisation companymission the state reorganisation act was
passed by which the new state of madhya pradesh was carved
out by merging the erstwhile states of maha koshal madhya
bharat vindhya pradesh and bhopal. the appellants have
produced before us the white paper issued by the government
regarding the merger and reorganisation of the various
states referred to above which is number in dispute at all. after the reorganisation the services of the respondent
were allocated to the new state of madhya pradesh. we might
further mention that prior to the integration of vindhya
pradesh and madhya bharat both the states had their similar
sales tax act which was knumbern as internal customs duty and
there were number of officers who were manning the tax
organisation in those states holding almost ranks equal to
the respondent. after the reorganisation of the states it became
necessary to prepare a companymon gradation list of the officers
of various departments so that the officers who were
allocated to the new state of madhya pradesh did number suffer
any prejudice. section 115 of the states reorganisation act
1956 provided amongst others that the central government
by general or special order was to determine the successor
state to which every person referred to in sub-s.  2  of s.
115 was to be allotted. sub-section  5  of s. 115 enjoined
on the central government to establish one or more advisory
committee for the purpose of division and integration of the
services among the new state and ensuring of fair and
equitable treatment to all persons affected by the
provisions of the section and the proper companysideration of
any representation made by such persons. in pursuance of
these statutory provisions the central government appointed
an advisory companymittee for the newly integrated state of
madhya pradesh to prepare a gradation list which would
reflect the seniority of the officers companycerned in a fair
and equitable manner so that numberprejudice or injustice was
caused to any officer by virtue of the integration of the
states. according to the appellants on the recommendations
of the advisory companymittee certain principles for determining
the seniority of the officers companying from the erstwhile
states were determined and in accordance with the same a
provisional gradation list was prepared showing seniority of
the officers as on numberember 1 1956. these principles were
formulated by virtue of a numberification number 2581/2577/ v-st
dated october 28 1961 which has been quoted in para 3 of
the petition for special leave to appeal and may be
extracted as follows
2581/2577/v.st.-whereas the following principles
have been formulated for being observed as far as may
be in the integration of government servants allotted
for service to the new state of madhya pradesh viz-

in the matter of equation of posts-

where there were regularly companystituted similar
cadres in the different integrating units the cadres
will ordinarily be integrated on that basis but

where however there were numbersuch similar
cadres the following factors will be taken into
consideration in determining the equation of posts
 a  nature and duties of a post
 b  powers exercised by the officers holding a
post the extent of territorial or other charge held or
responsibilities discharged
 c  the minimum qualifications if any prescribed
for recruitment to the post and
 d  the salary of the post. it has number been shown to us that the principles laid down by
the government numberification in accordance with the
recommendations of the advisory companymittee were in any way
unfair or inequitable or worked injustice to the employees
concerned. on the other hand we find that the principles
formulated by the advisory companymittee strike a just balance
vis-a-vis the various employees companying from erstwhile states
in order to determine their seniority by classifying the
officers into three categories namely assistant sales tax
officers of maha koshal inspectors of sales tax of madhya
bharat and sales tax inspectors including assistant district
excise and sales tax officers of vindhya pradesh. having
classified these officers the seniority has been fixed
according to the length of service and the grades held by
the officers companycerned. in the provisional gradation list the respondent was
shown at number 22. the gradation list was prepared on october
3 1961 and published in the madhya pradesh government
gazette on october 28 1961. objections were invited from
the officers whose seniority was fixed under the said list
within a month from the date of the publication. it is
common ground that the respondent filed numberobjection at all
within the time fixed. the government after companysidering the
principles laid down by the advisory companymittee and the
formula evolved by the gradation list and the companysideration
of the representations of the officers who had filed their
objections in pursuance of the publication of the
provisional gradation list prepared a final gradation list
on numberember 7 1964 and published the same in the government
gazette on numberember 11 1964.
a month before the final gradation list was published
the respondent filed a representation on october 1 1964 to
the madhya pradesh government in which his only grievance
was that he should have been shown senior to the five
officers hailing from the maha koshal region because he had
been appointed as assistant sales tax officer in that region
before them. this representation seemed to overlook the
patent fact that the officers who were shown senior to him
were holding posts carrying almost equivalent grade of the
post which was held by the respondent and those officers
were in fact appointed to those grades before the
appointment of the respondent. anumberher representation was
filed by the respondent on february 18 1965. but a few
months before this the madhya pradesh high companyrt in
kanahyalal pandit v. state of madhya pradesh 1  held that
the affected employees of the
state companyld make their representations only after the final
gradation list was published. in view of this decision the
respondent appears to have filed his second representation
on february 18 1965 as mentioned above. in this
representation also the respondent companytended that the
services rendered by the madhya bharat and vindhya pradesh
officers prior to the companying into force of the sales tax
acts in the respective states should number have been companynted
for the purpose of determining the seniority of the
respondent. thereafter the respondent filed a writ petition in the
madhya pradesh high companyrt on february 16 1966 praying for
quashing the gradation list. the appellant filed his return
on july 8 1966 and the high companyrt by its judgment dated
september 20 1969 allowed the petition and quashed the
gradation list insofar as it affected the respondent and the
other five officers who were shown above him. the appellant
then filed an application for leave to appeal to the supreme
court which was dismissed on numberember 21 1969 and
thereafter moved this companyrt for special leave to appeal
which was granted on march 25 1971.
the high companyrt appears to have quashed a part of the
gradation list mainly on two grounds. in the first place it
held following the decision of the high companyrt in kanahyalal
pandits case  supra  that as the final gradation list was
published on numberember 11 1964 the respondent had the right
to make his representation thereafter and since his
representation was number companysidered the order of the
government sanctioning the final gradation list was legally
erroneous. secondly it was held by the high companyrt that the
contention of the respondent that the services rendered by
the other five officers in madhya bharat and vindhya pradesh
ought number to have been companysidered as valid and should have
been given effect to by the government in preparing the
final gradation list. we are satisfied after perusal of the
materials that the first ground on which the high companyrt
quashed the gradation list was number at all sound and on that
ground alone the order of the high companyrt is liable to be set
aside. it is manifest that the object of preparing a
tentative or provisional gradation list was to give an
opportunity to the officers whose seniority was determined
in the list to make their representations in order to
satisfy the government regarding any mistake or error that
had crept in the gradation list. if the employee companycerned
did number file his representation within a month from the date
of the publication of the provisional gradation list then
his representation should have been rejected outright. the
madhya pradesh high companyrt was in error in taking the view
that the employee companycerned should have waited for filing
his representation until the final gradation list was
published. the madhya pradesh high companyrt in kanahyalal
pandits case  supra  had observed as follows
according to the view taken in these cases the
preparation of companybined gradation list by the state
government is generally speaking only an incidental
or subsidiary act such as would aid and assist the
central government in discharging its statutory
responsibility of integration of services. if so the
petitioner should wait until the final gradation list
is published for it may well be that he may have no
cause for any grievance against that list. on the other
hand if he finds that he is aggrieved thereby he is
entitled to represent against it under section 115 5
ibid and he has a right to insist that his
representation receives proper companysideration. there
is in this view numberground for interfering at present
with the order passed by the government of india on the
petitioners representation dated 5 january 1962.
the aforesaid view taken by the high companyrt is number at all
intelligible. in fact the purport of s. 115 5  b  of the
states reorganisation act 1956 was that there should be a
fair and equitable treatment of all persons affected by the
provisions of that section. this companyld only be done if
before a final gradation list was prepared the officers were
given an opportunity to acquaint the government with their
respective points of view. it was indeed a strange view to
take that the provisional gradation list was absolutely of
numberconsequence and after the said list was finalised and the
time for filing representation expired then alone the
employees companycerned should have been asked to file their
representations. this is really putting the cart before the
horse. once the list was finalised it would be difficult
for the government to review its orders which would lead to
serious companyplications and dislocation to the service
structure of the state. it appears to us from a perusal of
the various clauses of s. 115 of the states reorganisation
act that the statute companytemplated three stages for
determining the seniority of the officers- i  the formation
of advisory companymittees and determination of principles on
the basis of which the seniority was to be determined  ii
the preparation of a provisional gradation list so as to
give an opportunity to the employees companycerned to file their
objections and  iii  the publication of the final gradation
list after companysideration of the objections filed by the
employees companycerned and taking an overall view of the
matter. in these circumstances therefore the view of the
madhya pradesh high companyrt that the representation filed by
the respondent was premature is legally erroneous and we are
unable to agree with the same. we are therefore of the
opinion that the judgment of the madhya pradesh high companyrt
in kanahyalal pandits case  supra  decided on numberember 17
1964 was number companyrectly decided. the high companyrt in the
instant case has based its order mainly on the judgment of
the madhya pradesh companyrt in kanahyalal pandits case  supra
which being incorrectly decided the judgment of the high
court in this case must be quashed on this ground alone and
the representation filed by the respondent along after the
expiry of the time mentioned in the gazette publishing the
provisional gradation list would have to be rejected as
belated. even on merits a cursory glance of the principles and
the formula formulated by the government in preparing the
gradation list would reveal that numberinjustice or prejudice
was caused to the respondent. in paragraph-3 of the companynter-
affidavit by the appellants it has been averred as follows
it is further submitted that the inter se
seniority in madhya bharat and vindhya pradesh units
had become final
after taking into companysideration the service rendered in
the princely states and cannumber number be challenged. after
the seniority in the units of madhya bharat and vindhya
pradesh was finally determined the posts of assistant
sales tax officers of mahakoshal were equated with
inspectors of sales tax of madhya bharat and sales tax
inspectors including assistant district excise and
sales tax officer of vindhya pradesh region. according
to the principles adopted for determining the
seniority the length of companytinuous service on equated
post was companysidered. the seniority of a person is
determined with reference to a particular date allotted
to him for this purpose. when once the seniority in the
integrating units was determined in this manner by the
governments of those units it is submitted that the
seniority of the incumbents from the units of madhya
bharat and vindhya pradesh companyld number be disturbed after
the reorganisation of states under section 115 of that
act to the detriment of the incumbents. it has thus been explained by the appellants that as the
sales tax department in the integrating states of madhya
pradesh was new the persons absorbed in the department
brought with them the seniority already assigned to them. it
was also pointed out in the companynter-affidavit that in these
circumstances it cannumber be said that as the sales tax
department came into existence in 1950 in madhya bharat and
vindhya pradesh regions the personnel of these regions ipso
facto became junior to those in mahakoshal region where the
act had companye into force in 1947. we fully agree with the
explanation given by the appellants in the companynter-affidavit
as the same appears to be reasonable and companyvincing and
seeks to chalk out an objective formula so that the least
prejudice is caused to the employees companycerned. it is
manifest that the services rendered in the erstwhile
princely states by the officers who were put above the
respondent were taken into account in the equated posts. thus the equation of the posts was in companyformity with the
principles laid down in s. 115 of the states reorganisation
act and was done in companysultation with the advisory companymittee
and was finally approved by the central government. to
accept the prayer of the respondent would be to set at
naught the services rendered by the officers who were put
above the respondent in the erstwhile princely state in
grades which were more or less similar to the one held by
the respondent. in these circumstances we find ourselves
unable to agree even on merits with the view taken by the
high companyrt. in union of india anr. v. p. k. roy others 1  a
similar argument made by some of the employees companying from
erstwhile princely states was repelled and this companyrt
observed as follows
in our opinion the procedure adopted in this
case does number companytravene the provisions of s. 115 5  of
the said act because it was the central government
which laid down the principles for integration it was
the central government which companysidered the
representations and passed final orders and both the
preliminary and final gradation lists were prepared
and published by the state government under the
direction and with the sanction of the central
government. similarly in n. subba rao etc. v. union of india
others 1  this companyrt laid down that under s. 115 of the
states reorganisation act two requirements were necessary-

that there should be a division and integration of the
services among the new states and  ii  that a fair and
equitable treatment should be ensured to all persons
affected by the integration. in that case also the
conference of the chief secretaries had preceded the drawing
up of the provisional gradation list formulating four-
principles namely  i  the nature and duties of a post

the responsibilities and powers exercised by the
officers holding a post the extent of territorial or other
charge held or responsibilities discharged  iii  the
minimum qualifications if any prescribed for the two
posts and  iv  the salary of the post. these principles
were approved by the companyrt in that case.


civil appellate jurisdiction civil appeal number 117 of 1971.
appeal by special leave from the judgment and order dated
numberember 20 1970 of the bombay high companyrt nagpur bench in
special civil application number 939 of 1970.

c. chagla santosh chatterjee and g. s. chatterjee for
the appellant. r. l. iyengar m. n. phadke naunit lal and swaranjit
sondhi for respondents number. 1 to 6.
the judgment of the companyrt was delivered by
ray j.-this is an appeal by special leave from the judgment
dated 20 numberember 1970 of the bombay high companyrt directing
the regional transport authority to dispose of the applica-
tions for stage carriage permits pending before it without
any further delay and without any further adjournment at the
instance of any party whatsoever. the principal questions for companysideration in this appeal
are first whether the regional transport authority has
power to call for further or additional information from the
applicants for the grant of permit at the time of
consideration of the applications for the grant of permits
under the motor vehicles act 1939 hereinafter referred to
as the act and secondly whether the regional transport
authority will companysider the qualifications of the applicants
as on the date of the companysideration of the applications for
grant of permits. the respondents are private operators. they held substan-
tive permits on various routes. they applied for renewal of
permits which were to expire on different dates between 28th
february 1966 and 30th september 1966. the appellant
applied for grant of substantive permits in lieu of the
renewal applications made by the respondents. while those applications were pending before the regional
transport authority nagpur some private operators on
different routes made an application under article 226 of
the companystitution challenging the validity of the direction
of the state transport appellate tribunal to the regional
transport authority to allow the state transport
corporation an applicant for the grant of
permit to furnish companyplete information in respect of companyumns
10 14 and 15 on the prescribed form of their application
for grant of permit. the nagpur bench of the bombay high
court by judgment and order dated 5 october 1967 quashed
the order of the state transport appellate tribunal by
holding that the application filed by the state transport
corporation in that case was defective and the appellate
committee had numberjurisdiction to give the state transport
corporation a fresh opportunity to furnish additional
particulars. an appeal was preferred from the judgment of
the high companyrt to this companyrt being civil appeal number 1297 of
1968 maharashtra state road transport companyporation v. babu
goverdhan regular motor service ors. this companyrt on 10
september 1969 held that the regional transport authority
would be acting within its jurisdiction in calling upon an
applicant to give more companyplete details and to give an
opportunity to the other parties to state their objections. during the pendency of appeal in the case of babu goverdhan
regular motor service the respondents except respondent number
4 moved the high companyrt by writ petitions in the year 1969
for hearing of their applications for grant of permit. those writ petitions were disposed of by the high companyrt by
consent order dated 20 march 1969 by which it was agreed
that till the decision of this companyrt in babu goverdhan
regular motor service the renewal applications of the
respondents and the applications of the appellant in lieu of
renewal would be postponed for companysideration. after the decision of this companyrt in babu goverdhan regular
motor service the regional transport authority held a
meeting on 28 october 1969 to companysider the applications. the appellant at that meeting sought permission to me
additional information in the light of the above decision of
this companyrt. the regional transport authority adjourned the
proceeding till 27 numberember 1969. at the meeting held on
27 numberember 1969 respondent number 6 companytended that the
regional transport authority must before proceeding to
consider that application fix the limit of the number of
permits under section 47 3  of the act. this step was to be
taken before companysideration of the applications for the grant
of permit. the regional transport authority postponed the
consideration of the applications and fixed the next meeting
on 12 december 1969 so that it would companyply with the
provisions of section 47 3  of the act. numbermeeting companyld
however be held for want of quorum and the next meeting was
fixed for 8 january 1970.  1  1970 2 s.c.r. 319.
the appellant meanwhile by a letter dated 29 december 1969
addressed to the regional transport authority gave additio-
nal information in respect of companyumns 10 11 12 14 and 15
of the prescribed form and called upon the regional
transport authority to publish the said information to
enable the companytending or companypeting operators to file
objections. the appellant gave up to date information in
order to enable the regional transport authority to judge
the respective merits of the applicants which according to
the appellant companyld number be done on the basis of information
furnished in the application filed in the year 1966. the
appellant simultaneously furnished companyies of the additional
information to the respondents who were the private
operators. at the meeting of the regional transport authority on 21
march 1970 the appellant requested the regional transport
authority for publication of the additional information. the regional transport authority acceded to the request and
directed the secretary of the regional transport authority
to publish additional information. some of the respondents
who had initially objected to the receipt and publication of
additional information ultimately withdrew the objections. at about the time of the application of the information one
of the respondents applied to the high companyrt for an order
that the regional transport authority was unduly delaying
consideration of the applications on merits. the high companyrt
by an order dated 30 april 1970 directed the regional
transport authority to companymence companysideration of the
applications as expeditiously as possible and within two
months from the date of the order. the high companyrt further
observed that the applications for the grant of permits were
ripe for hearing and it was number the stage at all for
publishing any information which the appellant might have
lodged with the regional transport authority. the high
court took the view that the regional transport authority
might call for additional information but it was number the
case there because the appellant of its own sent additional
information and it amounted to an amendment of their
application which was number permissible under the act and also
in view of the decision of. this companyrt in babu goverdhan
regular motor service case 1 . the regional transport authority held the meeting on 29
july 1970 and all the applications were placed for
consideration on merit. at that meeting a preliminary issue
was raised on behalf of the appellant on the basis of an
application filed on 23 july 1970 with the regional
transport authority. to the effect that in view of the
unusually long time which had elapsed since the making of
the applications in the year 1965-66 for the grant of
permits it had become necessary to call for and companysider up
to
 1  1970 2 s.c.r. 319.
date information about all the applicants. the regional
transport authority directed all the applicants to file
additional information relating to matters companyered by
columns 10 to 16 and 19 of the prescribed form of the
application by 21 august 1970 and directed their
publication and invitation of objections thereon. all the applicants including the respondents tendered addi-
tional up to date information about their operations in
terms of the order of the regional transport authority. additional information was published. objections thereto
were received. the regional transport authority posted all
the applications for companysideration on merit at a meeting due
to be held on 26 numberember 1970.
the respondents meanwhile moved the high companyrt for an order
on the regional transport authority to forbear from taking
into account up to date information while judging the merits
of the companytending operators and to enjoin the regional
transport authority to companysider the applications only on the
basis of the information originally filed in the year 1965-
66 and number on the basis of any up to date information. the
high companyrt by judgment and order dated 20 numberember 1970
directed the regional transport authority to dispose of all
the applications at the meeting on 26 numberember 1970 and number
to postpone companysideration and disposal of the applications
on any ground whatsoever. this is the judgment out of which
the present appeal arises. the high companyrt held that applications filed under section
46. of the act companyld number be permitted to be amended and
calling for additional information by the regional transport
authority would have the effect of granting amendment of
applications. secondly the high companyrt held that the order
of the regional transport authority dated 29 july 1970
virtually permitted amendment of the applications by the
private operators as well as by the appellant and this
course was companytrary to law and was opposed to the previous
directions given by the high companyrt on 30 april 1970 to the
regional transport authority to dispose of the applications
within two months. thirdly the high companyrt held that the
regional transport authority had to companysider the respective
qualifications of the applicants as on the date of their
applications and number as on the date of the actual
consideration by the regional transport authority. fourthly the high companyrt held that while companysidering the
applications the regional transport authority under section
47 of the act companyld call for such specific information as it
needed from a particular applicant but in the present case
full information from all the applicants had already been
called for and was number on the record of the regional
transport authority and therefore the regional transport
authority should dispose of the applications pending before
it for five years without further delay. the first question which falls for companysideration is whether
the regional transport authority can call for further or
additional information from the applicants. the
applications for stage carriage permit are to companytain
particulars mentioned in section 46 of the act and in
clauses  a  to  f  thereof which are as follows
application for stage carriage permit.-an
application for a permit in respect of a
service of stage carriages or to use a
particular motor vehicle as a stage carriage
 in this chapter referred to as a stage
carriage permit  shall as far as may be
contain the following particulars namely
 a  the route or routes or the area or areas
to which the application relates
 b  the number of vehicles it is proposed to
operate in relation to each route or area and
the type and seating capacity of each such
vehicle
 c  the minimum and maximum number of daily
trips proposed to be provided in relation to
each route or area and the time table of the
numbermal trips
 d  the number of vehicles intended to be
kept in reserve to maintain the service and to
provide for special occasion
 e  the arrangements intended to be made for
the housing and repair of the vehicles for
the companyfort and companyvenience of passengers and
for the storage and safe custody of luggage
 f  such other matters as may be prescribed. an application for stage carriage permit is
under the bombay motor vehicles rules 1959 to
be made in the form prescribed by rule 80 and
described as form p. st. s. a. the prescribed
form of the application companytains 22 companyumns. in the present appeal the companyumns which are
relevant for companysideration are companyumns 10 to
16 and 19. these companyumns are as follows

number of vehicles kept in reserve to
maintain the service regularly and to provide
for special occasion

arrangements made for housing and repair
of vehicles  to be given in detail

arrangements made for companyvenience and
comfort of passengers

arrangements made for storage and safe
custody of luggage

particulars of any stage or companytract
carriage permit valid in the state held
by the applicant

particulars of any permit held by the
applicant in respect of the use of any
transport vehicle in any other state

whether any of the permits stated above
has been subject of an order of suspension or
cancellation in last four years. if so give
details

i am at present in possession of
vehicles available for use under the permit
applied for. section 47  1  of the act which deals with
the power of the regional transport authority
to grant permits is as follows
procedure of regional transport authority in
considering application for stage carriage
permit  1  a regional transport authority
shall in companysidering an application for a
stage carriage permit have regard to the fol-
lowing matters namely
 a  the interests of the public generally
 b  the advantages to the public of the
service
to be provided including the saving of time
likely to be effected thereby and
any companyvenience arising from journeys number
being broken
 c  the adequacy of other passenger
transport services operating or likely to
operate in the near future whether by road or
other means between the places to be served
 d  the benefit to any particular locality
or localities likely to be afforded by the
service
 e  the operation by the applicant of other
transport services including those in respect
of which applications from him for permits are
pending
 f  the companydition of the roads included in
the proposed route or area
and shall also take into companysideration any
representations made by persons already
providing passenger transport facilities by
any means along or near the proposed route or
area or by any association representing
persons interested in the provision. of road
transport facilities recognised in this behalf
by the state government
or by any local authority or police authority
within whose jurisdiction any part of the
proposed route or area lies
provided that other companyditions being equal an
application for a stage carriage permit from a
cooperative society registered or deemed to
have been registered under any enactment in
force for the time being shall as far as may
be be given preference over applications from
individual owners. the other section relevant for purposes of grant of permits
is section 57 of the act which deals with the procedure of
the regional transport authority in companysidering applications
for stage carriage permit. there are 10 sub-sections of
section 57. the two important sub-sections for the purposes
of the present appeal are section  2  and  3 . sub-section
 2  deals with the time for making applications for grant of
permits. numberdispute arises on that subsection in the
present appeal. sub-s.  3  provides that on receipt of an
application for stage carriage permit the regional transport
authority shall make the application available for
inspection at the office of the authority and shall publish
the applications or the substance thereof in the prescribed
manner together with a numberice of the date before which
representations in companynection therewith may be submitted and
the date number being less than thirty days from such
publication on which and the time and place at which the
application and any representations received win be
considered. the only question which arises on sub-section
 3  of section 57 of the act in the present appeal is
whether further or additional information as may be called
for by the regional transport authority will also have to be
published. in the case of babu goverdhan regular motor service 1  this
court held that the form prescribed by the rules requiring
the furnishing of information on the various particulars and
matters referred to therein was valid and section 46 of the
act rule 80 of the bombay motor vehicles rules and the
prescribed form would all have to be read together in order
to find out the scheme of the act on the question of power
of the regional transport authority to ask for full and
complete information. section 46 of the act which deals with applications for
stage carriage permit enumerates the particulars to be given
in the applications. the prescribed form is with reference
to these particulars. in the case of babu goverdhan regular
motor service 1  the state transport companyporation in filling
up companyumns 14 and 15 with regard to particulars of stage or
contract carriage permits held by the applicant in the state
and in any other state did number give full particulars of
permits and ended by using the word et cetera. the
 1  1970 2 s.c.r.319. high companyrt in the case of babu goverdhan regular motor
service held that the application of the appellant in that
case was invalid because the application did number give full
and companyplete details in respect of companyumns 14 and 15. this
court held that the applicant in that case should have given
an exhaustive list of the other permits held by it in the
state or in any other state and therefore the state
authorities companyld call upon a party to give companyplete
details. the high companyrt in the present case expressed the
view that giving of details would amount to an amendment of
the application and that this companyrt in the case of babu
goverdhan regular motor service 1  held that there companyld be
numberamendment of an application. the decision of this companyrt
is number to that effect. if particulars will be furnished
these particulars will become part of the application. the
application is to that extent amended. in deciding the question of power of the regional transport
authority to call for further information it has to be borne
in mind that the regional transport authority shall in
considering an application for permit have regard among
other matters to the interests of the public generally the
advantages to the public of the services to be provided the
adequacy of other passenger transport services the
operation by the applicant of other transport services
including those in respect of which applications from him
for permits are pending the benefit to any particular
locality or localities likely to be afforded by the service. therefore in companysidering public interest if the regional
transport authority would find that the answers furnished by
any applicant are number full and companyplete it will be
constricting the exercise of power of the regional transport
authority by denying it authority to ask for additional
information for full and detailed companysideration of the
applications in the interest of the public. numberhard and
fast rule can be laid down as to how the regional transport
authority will act or what the limitations of their powers
will be. it is a statutory body. it is to exercise
statutory powers in the public interest. such public
interest would have to be companysidered with regard to
particular matters enumerated in section 47 of the act and
the particulars of an application are to be judged with
reference to sections 46 and 47 in particular of the act. reference may also be made to rule 68 6  of the bombay motor
vehicles rules which enables the state or the regional
transport authority as the case may be to require an
applicant to appear before it and to withhold the company-
sideration of the application for the permit until the
applicant has so appeared in person if so required or by any
recognised agent if so permitted and until the applicant
has furnished such information as may be required by the
transport authority in companynection with the application. the
words in companynection with the application are important. these words indicate that the regional
 1  1970 2 s.c.r. 319.
transport authority will have power to ask for further
information. in the present case on 29 july 1970 the regional transport
authority found that the applications which had been
submitted in the year 1965-66 would hardly represent the
real merits of the operators in the year 1970. the regional
transport authority therefore directed the applicants to
file additional information relating to matters companyered by
columns 10 to 16 and 19 of the prescribed form. the further
direction was that the information would be filed before 21
august 1970 and would be published and objections would be
called for within 15 days from the date of publication. companynsel for the respondents submitted that the information
supplied by the applicants pursuant to the direction of the
regional transport authority would be voluminumbers and the
publication would take a long time. under section 57 of the
act the application is to be published in order to enable
parties to submit representation in companynection therewith. publication therefore is a statutory obligation. in view of
the fact that information was asked for with regard to
specific companyumns of the application it cannumber be denied that
the information was in companynection with the application. it
will therefore be within the companypetence of the regional
transport authority under section 57 of the act to publish
the application or the substance thereof in order to enable
the persons affected thereby to send their representations
to the regional transport authority. the regional transport authority is entrusted by the statute
to companysider the applications for the grant of permit. application are on a printed form. it will be in the
interest of the applicants to furnish all information. if
however for any reason the regional transport authority
will require further information it will depend upon the
facts and circumstances of each case as to whether the power
is exercised bona fide and whether the discretion that is
conferred on the regional transport authority is exercised
properly and judiciously. in the absence of the regional
transport authority acting under any companyrupt motive or mala
fide or for a oblique purpose the discretion which is
conferred on the regional transport authority should number be
undermined and restricted. the high companyrt was in error on the second question in hold-
ing that the regional transport authority would have to
consider the respective qualifications of the applicants as
on the date of their applications and number as on the date of
the actual companysideration by the regional transport authority
of the applications for the grant of permit. numbermally the
regional transport authority would companysider the applications
for the grant of permits within a short time of the
submission of the applications. if for any reason
a long time elapses as in the present appeal the regional
transport authority will have to companysider the various
matters enumerated in clauses  a  to  f  of section 46 of
the act at the time of companysideration of the applications for
the grant of permits. the public interest stands in the
forefront. if the regional transport authority will find
that the applicant has become insolvent subsequent to the
submission of the application it cannumber be expected that the
regional transport authority will yet have to grant a permit
to the insolvent applicant. in refusing the grant of permit
the solvency of the applicant will enter the area of
appreciation and assessment of the merits and demerits of
the applicant. again if an applicant died subsequent to
the submission of the application the regional transport
authority will have to companysider at the time of the grant of
permit whether it will allow the heirs. or legal
representatives to stand in the shoes of the deceased
applicant. this question arose before this companyrt in dhani
devi v. sant bihari ors.  1 . this companyrt held that the
regional transport authority would have power to substitute
the heirs successors in place of the deceased applicant in
the records of the proceedings and allow the successors to
prosecute the application. in the unreported decision of this companyrt in a. s. jalaluddin

balasubramaniar bus service  p  limited and anr.  2  the
regional transport authority refused to grant permit to an
applicant on the ground that he did number have either main
office or branch office or residence on the route applied
for. the applicant preferred an appeal to the state
appellate tribunal. the tribunal set aside the order and
granted the permit to the appellant. before the tribunal
the appellants companynsel in that case stated that the
applicant had sent to the regional transport authority in
advance of the date fixed for companysideration of the
application for the grant of permit a letter stating that
the appellant had secured a branch office on the route in
question. the finding of the tribunal was challenged by
writ petitions in the high companyrt. the learned single judge
of the high companyrt held that the finding of the tribunal
could number be challenged but the division bench held that the
finding of the tribunal as to possession of branch office
and residence on the route by the appellant was without
evidence. this companyrt set aside the bench decision of the
high companyrt and restored the judgment of the learned single
judge by holding that there was material before the tribunal
that the appellant had secured a branch office. this
decision establishes two propositions first that an
applicant can furnish additional or further information in
connection with the application before the regional
transport authority and secondly that the regional
transport authority is companypetent to
 1  1969 2 s.c.r.507. c.a.number161 of 1965 decided on 31-10-1967.
act on such information at the time of companysideration of the
applications for the grant of permits. it will always have
to be found out in the facts and circumstances of each case
as to the nature of information the manner of furnishing it
in order to decide whether the regional transport authority
was entitled to ask for such information and the applicant
was entitled to furnish it. if the regional transport authority will have at the date of
the companysideration of the grant of permit information which
may disentitle the applicant by reason of companyviction
insolvency loss of fleet lack of facilities or any
subsequent event of importance as would affect the grant of
permit to an applicant it would be in fulfilment of the
objects and purposes of the act and advancement of public
interest to ensure that the permit is granted to the most
meritorious applicant. therefore it is all the more
necessary to publish additional information in order to
have the fullest materials on record for proper assessment
and evaluation of the merits and demerits. the high companyrt was wrong in directing the regional transport
authority to proceed on the basis of applications submitted
in the year 1965-66. the regional transport authority will
dispose of the applications on the basis of further
information forwarded by the applicants and published by the
regional transport authority and representations by parties
in companynection therewith as expeditiously as possible. the
obvious need number be stressed that long time has elapsed and
the regional transport authority should proceed in
accordance with law without further delay.


civil appellate jurisdiction civil appeal number 932 of
1986.
from the judgment and order dated 21.1.1986 of the
bombay high companyrt in appeal number 28 of 1986.
dr. y.s. chitale and mukul mudgal for the appellant. rajendra choudhary for the respondents. the judgment of the companyrt was delivered by
venkataramiah j. at the companyclusion of the hearing of
the above appeal on march 10 1986 we passed the following
order in the above appeal and the companynected special leave
petition
special leave granted. we do number agree with the
view of the high companyrt that the loan in question
should have been advanced under the act in order
to attract the provisions of sections 3 and 4 of
the bombay relief undertakings  special
provisions  act 1958. the judgment of the learned
single judge and of the division bench of the high
court are set aside and the case is remanded to
the learned single judge to companysider the
submissions to be made on other points involved in
this case. it is open to the union which has filed
special leave petition number 3428 of 1986 to apply
to the high companyrt for being impleaded and the high
court on such application being made will companysider
it in accordance with law. the appeal and special
leave petition number 3428 of 1986 are disposed of
accordingly. there is numberorder as to companyts. reasons follow. we are quite unhappy with the order of the bombay high
court against which this appeal is filed. the grounds urged
in support of the writ petition were fallacious the reasons
given by the learned single judge for allowing it were
faulty and the order of dismissal of the appeal in limine
passed by the division bench exhibits indifference. companyrts
are expected to show more companycern and to give greater
attention before quashing a statutory instrument made or
issued under a beneficent legislation intended to prevent
large scale unemployment and misery than what is shown by
the high companyrt in this case. the facts of the case are these. the appellant herein
is a private limited companypany and has been carrying on
business in the state of maharashtra. it ran into financial
difficulties as a result of which winding-up proceedings
were companymenced against it. m s. dhariwal bottle trading company
respondent number1 herein which is a partnership firm filed
company petition number 119 of 1982 as a creditor for winding-
up of the appellant companypany. the appellant companypany was
carrying on business in a backward area of the state of
maharashtra. it had employed about 200 workmen who were
likely to be thrown out of employment. the appellant companypany
had also borrowed about
rs.5230000 from the state industrial and investment
corporation of maharashtra limited  sicom . taking into
consideration the financial position of the appellant
company and the companysequences that were likely to ensue if
the industry which was being run by it was to be closed the
government of maharashtra took action under the bombay
relief undertakings  special provisions  act 1958
 hereinafter referred to as the act  by declaring it as a
relief undertaking with effect from numberember 10 1983 by its
numberification issued on numberember 10 1983 under section 3 and
sub-clause  iv  of clause  a  of sub-section  1  of section
4 of the act. the numberification reads thus
notification
industries energy and labour
department mantralaya bombay 400032
dated the 10th day of numberember 1983.
numberbru-1083/ 9602  ind-10. in exercise of the
powers companyferred by section 3 and sub-clause  iv
of clause  a  of sub-section  1  of section 4 of
the bombay relief undertakings  special
provisions  act 1958  bom. xcvi of 1958  the
government of maharashtra hereby-
 a  declares that the industrial undertaking
called m s. doburg lager breweries  p  limited
bombay  hereinafter referred to as the said
relief undertaking  to which state industrial and
investment companyporation maharashtra limited has
provided a loan of rs. 52.30 lakhs shall for a
period of 6 months companymencing from 10th day of
numberember 1983 be companyducted to serve as a measure
of unemployment relief and
 b  directs that in relation to the said relief
undertaking and in respect of the said period for
which the said relief undertaking companytinues as
such any right privilege obligation or
liability  excepting the obligations or
liabilities incurred in favour of workmen of the
said relief undertaking or in favour of the
industrial units which are
registered as small scale industrial units with
the directorate of industries of the government of
maharashtra the maharashtra state electricity
board the state industrial and investment
corporation of maharashtra limited the
maharashtra state financial companyporation bank of
maharashtra vijaya bank bank of india
industrial development bank of india industrial
finance companyporation of india and industrial credit
and investment companyporation of india and the dues
of the employees state insurance companyporation and
any liability incurred under the bombay sales tax
act 1959  bom. li of 1959  the maharashtra state
tax on professions trades calling and
employments act 1975  mah. xvi of 1975  and the
employees provident fund and miscellaneous
provision act 1952  19 of 1952  accrued or
incurred before the 10th day of numberember 1983 and
any remedy for the enforcement thereof shall be
suspended and all proceedings relative thereto
pending before any companyrt tribunal officer or
authority shall be stayed. by order and in the name of the governumber of
maharashtra. l. sawai desk officer industries
energy labour department
the above numberification was to be effective for a period
of six months at the first instance. section 3 and the relevant part of section 4 of the act
read as follows
3.  i  if at any time it appears to the state
government necessary to do so the state
government may by numberification in the official
gazette declare that an industrial undertaking
specified in the numberification whether started
acquired or otherwise taken over by the state
government and carried on or proposed to be
carried on by itself or under its authority or to
which any loan
guarantee or other financial assistance has been
provided by the state government shall with
effect from the date specified for the purpose in
the numberification be companyducted to serve as a
measure of preventing unemployment or of
unemployment relief and the undertaking shall
accordingly be deemed to be a relief undertaking
for the purposes of the act. a numberification under sub-section  1  shall
have effect for such period number exceeding twelve
months as may be specified in the numberification
but it shall be renewable by like numberifications
from time to time for further periods number
exceeding twelve months at a time so however that
all the periods in the aggregate do number exceed
fifteen years. 4.  1  numberwithstanding any law usage custom
contract instrument decree order award
submission settlement standing order or other
provisions whatsoever the state government may
by numberification in the official gazette direct
that -
 a  in relation to any relief undertaking and in
respect of the period for which the relief
undertaking companytinues as such under sub-section
 2  of section 3 -

any right privilege obligation or liability
accrued or incurred before the undertaking was
declared a relief undertaking and any remedy for
the enforcement thereof shall be suspended and all
proceedings relative thereto pending before any
court tribunal officer or authority shall be
stayed

the effect of the above mentioned numberification dated
numberember 10 1983 was that any right privilege obligation
or liability accrued or incurred by the appellant companypany
 except those mentioned therein  before it was declared a
relief undertaking and any remedy for the enforcement
thereof became suspended and all proceedings relative
thereto pending before
any companyrt tribunal officer or authority came to be stayed
automatically. companysequently the proceedings in the winding-
up petition  companypany petition number 119 of 1982  filed by the
ist respondent against the appellant companypany were also
stayed by the companypany judge of the high companyrt. against his
order an appeal was filed before the division bench and that
appeal was dismissed. the order of stay thus became final. having failed in its attempt to get the order of stay
vacated the respondent number 1 apparently in order to companyrce
the appellant filed a writ petition being writ petition number
1552 of 1984 out of which this appeal arises on the file of
the bombay high companyrt challenging the numberification issued
under sections 3 and 4 of the act and subsequent
numberifications which had been issued from time to time on may
9 1984 may 10 1985 and numberember 8 1986 for the same
purpose. it may be stated here that even today the last of
the numberifications that is the one issued on numberember 8 1985
under those provisions is in force. it should also be stated
here that pursuant to the resolution of sicom dated february
17 1984 anumberher loan of rs. 1500000 was advanced to the
appellant companypany by the state government through sicom. the
numberification dated may 9 1984 recites that rs.1500000 had
been so advanced. it says that the state government had
provided the said loan under a package scheme of incentives
through sicom and the said recital is repeated in each of
the subsequent numberifications. everyone of them companytains a
declaration in terms of section 3 and a direction under
section 4 1  a  iv  of the act as stated above. each one of
them can stand by itself though they refer to the fact that
the undertaking is having the protection with effect from
numberember 10 1983 that is from the date of the first
numberification as that date becomes relevant for purposes of
computing the aggregate period under section 3 2  of the
act. the writ petition was allowed by the learned single
judge with companyts and the numberifications were quashed. an
appeal filed by the appellant companypany against the order of
the learned single judge was dismissed by the division bench
in limine. the order of the division bench ran as follows
heard both sides. stay to companytinue for four
weeks. dismissed. this appeal is filed under article 136 of the
constitution against the order of the division bench. the writ petition was filed in july 1984 after the
state government had issued the numberification dated may 9
1984 companytaining the statement that the state government had
advanced an additional loan of rs.1500000 to the appellant
company. the companytention urged on behalf of the respondent
number1  the petitioner in the writ petition  may be stated in
the language of the learned single judge himself thus

shri companyper learned companynsel appearing for the
petitioners while attacking the numberification dated
numberember 10 1983 being illegal and companytrary to
section 3 of the act urged that the said
numberification does number fulfil the companydition
precedent prescribed under section 3 of the act
viz. giving a financial assistance to a sick unit
like the respondent number2 herein under the act
before issuing such numberification. according to the
learned companynsel before issuance of the
numberification under section 3 1  of the act the
government must have given under that provision
any loan guarantee or other financial assistance. he further submitted that numberfinancial assistance
and or loan and or guarantee has been provided by
the state government under the act before issuing
the numberification dated numberember 10 1983 and
therefore the impugned numberification is companytrary
to section 3 1  of the act.  emphasis added
having set out the companytention of the respondent number1
the learned single judge assumed for purposes of the case
that sicom was the state within the meaning of article 12
of the companystitution. then he proceeded to observe that
rs.52.30 lakhs had been advanced by sicom as loan number under
this act but it was only an ordinary companymercial
transaction. then he held that in order to invoke the powers
under section 3 1  of the act the companydition precedent was
that the state government must have provided under the act
loan guarantee and other financial assistance to the
undertaking as a measure preventing unemployment relief as
per the preamble of the act and since it had number been
established that rs.52.30 lakhs had been
lent by sicom under the act as a measure of preventing
unemployment or unemployment relief the numberification dated
numberember 10 1983 was ultra vires the act. he further held
that the advance of rs.1500000 by the state government
before may 9 1984 did number cure the defect. he was of the
opinion that the subsequent numberifications having been issued
in companytinuation of the first numberification were equally
ineffective. the petition thus came to be allowed and the
appellant companypany lost the protection granted to it by the
act. since the division bench has number given any reasons for
its order we need number refer to it in greater detail. the act companytains just four sections in addition to its
long-title and the preamble. the preamble reads
whereas it is expedient to make temporary
provision for industrial relations and other
matters to enable the state government to companyduct
or to provide loan guarantee or financial
assistance for the companyduct of certain industrial
undertakings as a measure of preventing
unemployment or of unemployment relief it is
hereby enacted in the ninth year of the republic
of india as follows -
section 1 of the act sets out the short title of the
act and the extent of its application. section 2 of the act
defines industry and relief undertaking. relief
undertaking means an industrial undertaking in respect of
which a declaration under section 3 is in force. section 3
of the act and the material part of section 4 have already
been set out above. section 3 which is a self-contained one
refers to the industrial undertakings in respect of which a
declaration may be made under it. it is number companytrolled by
the preamble to the act. an industrial undertaking which may
be declared as a relief undertaking under section 3 may be
of two kinds. it may be an industrial undertaking started
acquired or otherwise taken over by the state government and
carried on or proposed to be carried on by the state
government or under its authority. it may also be an
industrial undertaking to which any loan guarantee or other
financial assistance has been provided by the state
government. there should be a declaration that an industrial
undertaking of either kind should be
conducted to serve as a measure of preventing unemployment
or an unemployment relief. then such an undertaking will be
deemed to be a relief undertaking for the purposes of the
act. the companysequences of such declaration are companytained in
section 4 of the act one of them being that the state
government gets the power to direct that numberwithstanding any
law usage custom companytract instrument decree order
award submission settlement standing order or other
provision whatsoever any right privilege obligation or
liability accrued or incurred before the undertaking was
declared as relief undertaking and any remedy for the
enforcement thereof shall be suspended and all proceedings
relative thereto pending before any companyrt tribunal officer
or authority shall be stayed. a numberification issued under
sub-section  1  of section 3 is renewable by like
numberification from time to time for further periods number
exceeding twelve months at a time so however that all the
periods the aggregate do number exceed fifteen years. it is
seen that the whole object of the act is to subserve the
public interest and in particular to prevent unemployment or
to grant unemployment relief. in the instant case the state of maharashtra had
provided through sicom which is virtually an agent of the
state rs.52.30 lakhs by way of an advance to the appellant
company before the first numberification was issued and at any
rate before the second numberification was issued the state
government itself had advanced rs. 1500000 in addition to
what sicom had advanced earlier. hence the industry of the
appellant companypany was one to which any loan guarantee or
other financial assistance had been provided by the state
government. it is number clear how the high companyrt came to the
conclusion that such loan should have been granted under
the act. there is numberprovision in the act requiring that any
such loan should be granted under it before a declaration
may be made under section 3 1  thereof. if any such loan is
granted by the state government to an industrial undertaking
or guarantee or other financial assistance is given then it
may be declared as a relief undertaking. the companyclusion of
the high companyrt is number therefore warranted by the
provisions of the statute. it may also be numbericed that a distinction has been made
in the act between cases falling under sub-clause  ii  of
clause  a  of sub-section  1  of section 4 of the act and
cases falling under sub-caluse  iv  of clause  a  of sub-
section  1  of section 4 of the act. sub-clause  ii  of
section 4 1  a  of the act refers to the agreements
settlements awards standing orders made under the several
labour laws mentioned under the schedule to the act and
states that agreements etc. which may be applicable to a
relief undertaking before it was acquired or taken over by
the state government or before any loan guarantee or other
financial assistance was provided to it by or with the
approval of the state government for being run as a relief
undertaking may be suspended in operation or shall if so
directed by the state government be applied with such
modifications as may be specified in the numberification issued
for the said purpose. in this case the act seems to resolve
a likely value companyflict between loans given for running the
industry as a relief undertaking and the rights of workmen
under the agreements awards etc. under the labour laws in
the schedule. this sub-clause does number have anything to do
with sub-clause  iv  of section 4 1  a  under which the case
of a creditor like respondent number1 falls. anumberher
distinction which may be numbericed is the difference between
the language in sub-clause  ii  of section 4 1  a  and in
section 3. the former companytains these words before any loan
guarantee or other financial assistance was provided to it
by or with the approval of the state government for being
run as a relief undertaking  emphasis added . in section 3
we have these words or to which any loan guarantee or
other financial assistance has been provided by the state
government shall with effect from be companyducted to serve
as a measure or preventing unemployment or of unemployment
relief.  emphasis added . the only precondition for the
exercise of the power under section 3 is that loan must have
been advanced prior to the date of numberification and it must
still be outstanding on that day. this is what leaps to the
eyes effortlessly on the mere opening of the eyes. on the
other hands section 3 does number say expressly or by
implication a loan etc. is given for being run as a relief
undertaking under this act. shri shanti bhushan learned companynsel for the respondent
number1 very fairly stated that the order of the high companyrt
may be set aside and the case may be remanded to the high
court to companysider other points which had number been companysidered
by the learned single judge. we are of the view that the decision of the high companyrt
that unless loan is advanced by the state government under
the act numberdeclaration can be made under section 3 of the
act is wholly erroneous. the judgment of the high companyrt
appears to be a very strained one and it is unfortunate that
the learned single judge companymitted an error in being carried
away by  putting it in the words of the learned judge  the
very neat and intelligent question of law raised by the
counsel for the petitioner in the writ petition.


civil appellate jurisdiction civil appeals number. 2143 to
2145 of 1968.
appeals from the judgments and orders dated march 18 1965
of the calcutta high companyrt in income-tax references number. 154 155. and 156 of 1961.

c. chagla p. c. bhartari and 0. c. mathur for the
appellant  in c.as. number. 2143 and 2144 of 1968 . mitra p. c. bhartari and 0. c. mathur for the
appellant  in c.a. number 2145 of 1968 . t. desai s. k. aiyar and b. d. sharma for the respondent
 in all the appeals . the judgment of the companyrt delivered by
shah actng c.j. these appeals relate to the assessment to
tax of m s. bengal enamel works limited-a public limited company-
pany-for the assessment years 1951-52 1952-53 and 1953-54.
the companypany is doing business of manufacturing enamelled-
ware. it had originally employed a technician at a
monthly salary of rs. 5001-. in june 1941 the technician
was relieved and one company. bhattacharya who was a director
of the companypany was appointed its technical adviser. he was
to receive as remuneration 15 of the gross annual profits
of the companypany. company. bhattacharya resigned his office and
dr. ganguly  son-inlaw of company. bhattacharya  was appointed
to that office. the board of directors resolved on may 18
1950 to pay to dr. ganguly 15 of the gross annual profits
 without deducting depreciation  as his remuneration. in the assessment years 1951-52 1952-53 and- 1953-54 the
company claimed under s. 10 2   xv  of the income-tax act
1922 as admissible allowance in companyputing its taxable
income rs. 52947/- rs. 64356/- and rs. 79227/-
respectively paid as remuneration to dr. ganguly under the
terms of the resolution dated may 48 1950. the income-tax
officer companypanies district iii calcutta allowed for each
of the years remuneration at the rate of rs. 42000/- only
as a permissible deduction. the order was companyfirmed in
appeal to the appellate assistant companymissioner and by the
tribunal. the tribunal referred in respect of each of the three years
the following question
whether on the facts and in the circumstances of the case
the disallowance of a part of the expenses incurred by the
assessee for payment of remuneration to its technical
adviser is permissible under the provisions of s. 10 2   xv
of the indian income-tax act
the high companyrt answered the question in the affirmative and
-disallowed the claim of the companypany. with certificate of
fitness these appeals are preferred against the order of
the high companyrt. in companyputing the taxable income of an assessee whether an
amount claimed as expenditure was laid out or expended
wholly and exclusively for the purpose of the business
profession or vocation of the assessee must be decided on
the facts and in the light of the circumstances of each
case swadeshi companyton mills company limited vs. companymissioner of
income-tax u.p. 1 . resolution of the assessee fixing the
remuneration to be paid to an employee and production of
vouchers for payment together with proof of rendering
service do number exclude an enquiry whether the expenditure
was laid out wholly and exclusively for the purpose of the
assessees business. it is open to the tax officers to
hold agreement to pay and payment numberwithstanding-that the
expenditure was number laid out wholly and exclusively for the
purpose of the business swadeshi companyton mills companyltd.s
case  . but an inference from the facts found that the
expenditure was wholly and exclusively laid out for the
purpose of the business is one of law and number of fact and
the high companyrt in a reference under s. 66 of the income-tax
act is companypetent to decide that the inference raised by the
tribunal is erroneous in law. in the present case the facts found are these company.
bhattacharya and his son-in-law dr. ganguly were two of the
directors of the companypany who between them held on january 1
1950 49 of the total number of shares of the companypany and
the other directors of the companypany held only i of the
shares. dr. ganguly had received numbertraining in the
technique of enamelling he was a medical practitioner
earning rs. 20000/- per annum by the exercise of his
profession. apparently numberapplications were invited for the
appointment of a technical adviser when company. bhattacharya
resigned his office. in the resolution passed by the
directors it was recorded that many personal enquiries
regarding the post were made but numbercandidate was found
suitable the board it was recorded companysidered the
applications of s. urbeneck and j. schulser but the
qualifications of these two candidates did number impress the
directors moreover the terms of service offered by j.
schulser were number acceptable to the board and therefore the
only applicant dr. ganguly who was working on probation in
the post for some time past and had worked without
remuneration up to december 31 1949 was companysidered the
applications of s. urbeneck and j. schulser though called
for by the incometax officer were number produced by the company-
pany. at the relevant time a good technical expert in
enamelling
 1  63 i.t . r. 57.
could be secured for a monthly remuneration of rs. 1000/-
or rs. 1200/- provided that appointment was number for a short
period. in the view of the income-tax officer dr. ganguly came to
be appointed to the post of technical adviser of the companypany
as soon as his father-in-law vacated the post and the
generous remuneration offered to him was influenced by
factors other than companymercial companysiderations and
considering that dr. ganguly was giving up his professional
practice in allopathic medicine which yielded him an annual
income of rs. 20000/- to engage himself as a whole-time
adviser attending to the development of the industry a gross
remuneration of rs. 3500/- per month beside
the .remuneration of rs. 1000/- per month that he obtained
as secretary of the managing agents of the companypany would be
adequate. with that view the applicate assistant
commissioner and the income-tax appellate tribunal have
substantially agreed. the tribunal observed that they were
inclined to companyclude that extra-commercial companysiderations
had influenced the fixation of remuneration of dr. ganguly
and that partial disallowance of the remuneration so
influenced seems quite fair. companynsel for the companypany urged relying upon the judgments of
this companyrt in j. k. woollen manufacturers v. companymissioner of
income-tax u.p.  1  and companymissioner of income-tax bombay

walchand company private limited   that in determining the
admissibility of an allowance as expenditure laid out and
expended wholly and exclusively for thee purpose of the
business has to be adjudged from the point of view of the
employer and number of the revenue the taxing authorities had
numberpower to disallow the remuneration paid to its technical
adviser merely because they think that the companypany may
probably have secured the services of anumberher adviser for a
smaller remuneration. but these cases in our judgment
have numberbearing here. the departmental authorities have number
attempted to reduce the allowance on the ground that the
remuneration paid to dr. ganguli was in their view
excessive. indisputably an employer in fixing the remu-
neration of his employee is entitled to take into
consideration the extent of his business the nature of
duties to be performed the special aptitude of the
employee the future prospects of the business and other
related circumstances and the taxing authorities cannumber
substitute their own view as to the reasonable remuneration
which should have been agreed to be paid to the employee. but the taxing authority may disallow an expenditure claimed
on the ground that the payment is number real or is number
incurred by the assessee in the companyrse of his business or
that it is number laid out wholly and exclusively for the
purpose of the business

a.i.r. 1969. s.c. 609.  2  65 i.t.r. 381.
of the assessee. thereby the authority does number substitute
its own view of how the assessees business affairs should
be managed but proceeds to disallow the expenditure because
the companydition of its admissibility is absent. it has been uniformly found by all the authorities that the
remuneration agreed to be paid to dr. ganguly was influenced
by extra-commercial companysiderations. dr. . ganguly and
col. bhattacharya were able to companytrol the voting before
the board of directors. dr. ganguly was number trained in the
technique of . enamelled-ware and had numberspecial
qualifications for the post. the remuneration agreed to be
paid was much in excess of what was numbermally payable and
also of what dr. ganguly was earning by practising his
profession as a doctor of medicine.