civil appellate jurisdiction civil appeal number 211 of 1955.
appeal from the judgment and order dated.december 30 1952
of the punjab high companyrt in civil reference case number 18 of
1952.

j. umrigar and r. h. dhebar for the appellant. hardayal hardy for tile respondents. 1958. october 3. the judgment of the companyrt was delivered by
sarkar j.-by an agreement made in 1936 the assessee companypany
appointed a firm as its managing agents. the agreement
provided that the managing agents would be remunerated in
the manner following
in companysideration for acting as managing agents the companypany
should pay to the firm remuneration at rs. 750 p.m. or such
principal sum as may from time to time be deemed reasonable
by the directors and in addition a companymission equal to 10
of the annual net profits. such net profits will be arrived
at after allowing the working expenses interest on loans
and due depreciation but without setting aside anything to
reserves or other special funds. the question is whether the companymission payable to the
managing agents under this agreement is to be ten per cent. of the profits of the assessee without deduction of the
excess profits tax payable by it oil its profits or after
deduction. the question has arisen in the companyrse of the assessment of
excess profits tax payable by the assessee. the excess
profits tax officer held that the companymission has to be
ascertained on the profits remaining after deduction of
excess profits tax. this view was upheld by the appellate
assistant companymissioner on an appeal being taken to him by
the assessee. on a further appeal by the assessee to the
appellate tribunal it was held that the companymission has to be
ascertained on the profits without any deduction of the tax. the revenue authorities then applied for and obtained an
order from the tribunal referring the following question for
decision by the high companyrt
whether on a true companystruction of the managing agency
agreement between the assessee companypany and its managing
agents entered into in 1936 the relevant clause of which is
quoted above the excess profits tax payable should be
deducted from the profits of the companypany for the purpose of
arriving at the annual net profits of which a percentage
should be paid to the managing agents as their companymission. the high companyrt answered the question in the negative. the present appeal is by the revenue authorities against the
judgment of the high companyrt. the question is a short one. it is one of companystruction of
the managing agency agreement. of companyrse whatever is
payable under this agreement to the managing agents as their
remuneration is a proper expense of the business of the
assessee and has to be deducted in ascertaining its profits
and it is upon such profits that excess profits tax has to
be assessed. there is numberdispute about this. the dispute
has arisen because the remuneration of the managing agents
is we leave out number the minimum and fixed remuneration of
rs. 750 per month as to which numberquestion arises and with
which we are therefore number companycerned-itself to be calculated
on the profits. the dispute is whether the proper
construction of the agreement is that the profits a
percentage of which is to be paid to the managing agents as
their remuneration are the profits before deduction of
excess profits tax or after. what then is the true companystruction ? the agreement is that
the net profits will be arrived at after allowing the
working expenses interest on loans and due depreciation but
without setting aside anything to reserves or special
funds. we can leave out the things expressly made number
deductible for as to these numberquestion arises the question
being whether something more namely excess profits tax
can be deducted. working expenses interest on loans and due
depreciation have however been expressly made deductible in
ascertaining the net profits. if these are all the
deductions that can be made excess profits tax cannumber be
deducted for it does number companye under any one of them. but it
seems to us that the agreement was number intended to lay down
all the deductions that can be made. it is number in dispute
that expenses like overhead expenses litigation expenses
and similar other expenses properly incurred for carrying on
the business can be deducted in arriving at the net profits. these would number be included within working expenses for
that expression is usually understood as referring to
expenses debitable to the trading account
as having been incurred directly in making the income shown
there. if this were number the sense in which the expression
working expenses was used and it was meant to companyer all
revenue expenses incurred then there would have been no
need to mention interest on loans and depreciation
separately for these latter would have been included as
revenue expenses in the expression working expenses . we
are therefore inclined to think that there are other items
besides those expressly mentioned which have to be deducted
before the net profits can be arrived at. what then are these other items? that will depend on what
the parties must be taken to have had in mind when they used
the words net profits . the intention of the parties as
to what they meant by these words can be best gathered by
trying to find out what they were about in making the
agreement. the parties were a master and a servant and they
were fixing the remuneration of the servant. they decided
that profits or numberprofits the servant would have a certain
fixed sum per month. they also agreed that the servant
would besides the fixed sum have a certain portion of the
net profits. the net profits whatever they were would of
course be a variable figure in some years they would be
more or less than in other years. the parties therefore
agreed that the remuneration of the servant would increase
or decrease as the net profits were larger or smaller. but
why did they do so ? obviously because they thought that it
was fair that the servants remuneration should be
commensurate with the benefit that his work produced for the
master the larger such benefit was the larger the
servants remuneration and vice versa. it is difficult to
imagine that the parties agreed that remuneration would be
paid for profits earned by the servants efforts of which
the master did number get the benefit. this view of the matter
becomes clearer when one remembers that besides the variable
remuneration dependent oil the profits the servant had a
fixed minimum remuneration. the agreement therefore was
essentially one to share the profits the agreement was that
part of the profits was
to go to the servant and part enure for the masters
benefit. if this is the true companystruction of the agreement
as we think it is then it follows that the net profits
contemplated by the parties are such profits as can be
divided between the master and the servant they are such of
which both the master and the servant get the enjoyment in
stated proportions. in other words they are the divisible
profits of the companypany divisible that is to say between
the master and the servant. in order that the divisible
profits can be ascertained excess profits tax has of companyrse
to be deducted. as to that there does number seem to be any
doubt for that part of the profits which is taken away by
the state as excess profits tax is number available either to
the master or the servant and cannumber therefore be divided
between them. it is said that the agreement cannumber be companystrued in this
way because that would be adding a word to it the word
divisible number being there is introduced into the agreement
to support this companystruction. this however is number so. no
word is being introduced but the words used are only being
explained. it is only stating that the parties meant by
net profits  the divisible profits. it is really stating
the same thing in different words. it is also numberobjection to the view that we take that
excess profits tax is a part of the profits itself it
perhaps is so but it is numberpart of the net profits
contemplated by the parties. it is a part which has to be
deducted in arriving at the net profits that is to say the
divisible profits which alone the parties had in mind. as a matter of companystruction of the agreement before us-and
we do number think that the question involved in this case can
be decided in any other way-therefore we companye to the
conclusion that the net profits mean the divisible
profits and are to be ascertained after deduction of excess
profits tax which is payable by the assessee. that is how the matter strikes us apart from any authority. we number turn to some of the authorities which were cited at
the bar. they are in re companydran
condran v. stark  1  patent castings syndicate limited v.
etherington  2  vulcan motor and engineering company v. hampson
 3   re g. b. ollivant company limiteds agreement james
finlay company limited v. finlay mills limited and walchand company
ltd. v. hindusthan companystruction company limited  6 . these cases
however all turn on the companystruction of the agreements
involved in them. they are therefore number of much assistance
in companystruing the agreement that we have before us for
each agreement has to be companystrued according to the words
contained in it and the circumstances in which it was made. the judgment in re g. b. ollivant company limiteds agreement
 supra  referred to earlier is that of the house of lords. in the judgment delivered in this case by the companyrt appeal
reported in  1942  2 all e. r. 528 which was affirmed by the
majority of the house of lords lord greene m. r. warned
that in questions of this kind authorities were of no
assistance. referring to the earlier english cases
mentioned above he said  p. 532
they decide that on the true companystruction of the
agreements there in companytroversy the phrase net profits
in etheringtons case the phrase profits earned by the
company in vulcans case and the phrase net profits in
condrans case all meant the divisible profits of the
company in the first two cases and of the partnership in the
third. they went on to decide a matter which i should have
thought was number open to question namely that in
ascertaining divisible profits excess profits duty fell to. be deducted  but
beyond that those authorities do number appear to me to afford
any assistance. the first part of the decisions as to the
meaning of profits or net profits in those particular
agreements does number help because the language is entirely
different from that used in the present case and the second
part of the decisions namely that in ascertaining
divisible profits excess profits duty is to
 1  1917 1 ch. 639.  3  1921 3 k. b. 597.  5   1942  47 bom. l.r. 774.  2  1919 2 ch. 254.  4  1942 2 all e. r. 528.  6   1943  45 bom. l.r. 951.
be deducted is as i say a matter for which i should have
thought authority was number required
like the earlier cases re o. b. ollivant company limiteds
agreement  1  also turned on the language of the agreement
involved in it and is number therefore of any great assistance. the indian cases mentioned earlier were also decided on the
agreements with which they were companycerned. in the james
finlay company limited case  2  the agreement provided that the
net profits were to be ascertained before setting aside any
sum for payment of income-tax super-tax or any other tax
on income . it was held that any other tax on income
included excess profits tax which companyld number therefore be
deducted. beaumont c. j. observed in this case that it
having been held that income-tax being something which is
payable out of the profits and number a liability to be
deducted in ascertaining the profits it was difficult to
explain why the same principle should number apply to excess
profits duty. he also said that a distinction had been made
between the two taxes in the english cases to some of which
we have earlier referred but he did number think it necessary
to companysider whether all the grounds of distinction were
sound because in the case before him he thought that excess
profits tax had been expressly dealt with. in the walchand
co. limited case the agreement was very much like the
agreement that we have before us. it provided that the
managing agents would be paid ten per-cent. of the annual
net profits earned by the companypany and also stated that in
arriving at the net profits certain deductions would be made
which included the working expenses and that certain other
deductions would number be made but numbermention was made of
excess profits tax as being deductible or otherwise. beaumont c. j. who was a member also of the bench which
decided this case held that the agreement was a profit
sharing agreement and the net profits had to be ascertained
after deducting excess profits tax. number we do number refer to
these judgments
 1  1942 2 all e. r. 528.  2   1942  47 bom. l.r. 774.  3   1943  45 bom. l.r. 951.
as supporting anything that we say but because the high
court unwittingly fell into the error of thinking that the
walchand company limited case  1  came before the james finlay
co. limited case  2  and that in the latter case beaumont c. j.
had doubted the companyrectness of what he had said in the
former. these observations are wholly wrong because the
james finlay company limited case  2  was decided long before
the walchand company limited case  1  had been decided. neither
do we find that there is any companyflict between the two cases. in the walchand company limited case  1  beaumont c. j. gave
reasons for making a distinction between income-tax and
excess profits tax and thought that the distinction between
them made in the english cases to which we have referred
was number of substance. we do number think it necessary to say
anything as to whether beaumont c. j. was right in this
view. oil behalf of the assessee we were pressed with the same
contention that as it has long been held that income-tax
could number be deducted in ascertaining the net profits of a
company excess profits tax companyld number also be deducted for
they were substantially of the same nature each being a tax
on the profits. indeed in ashton gas companypany v. attorney-
general  3  where the house of lords had to companystrue the
provision in the incorporating statute of the gas companypany
which provided that the profits to be distributed among the
shareholders in any year should number exceed a given rate the
following observation occurs in the opinion delivered by
lord halsbury l. c. at p. 12
income-tax is a charge upon the profits the thing which
is taxed is the profit that is made and you must ascertain
what is the profit that is made before you deduct the tax-
you have numberright to deduct the income-tax before you
ascertain what the profit is i cannumber understand how you
can make the income-tax part of the expenditure. number it seems to us that there is numberhing in the ashton gas
co. case 3  which prevents us from
 1   1943  45 bom. l.r. 951.  2   1942  47 bom. l.r. 774.  3  1906 a. c. 10 12.
holding that in ascertaining the net profits for the purpose
of the agreement that is before us excess profits tax has
to be excluded. that was number a case of profit sharing. it
was number companycerned with deciding what sums are deductible in
arriving at the divisible profits in a profit sharing
agreement. that is what we have to decide. therefore we
think that the ashton gas company case  1  does number assist in
answering the question that has arisen in this case. number do we think it necessary in the present case as we have
said earlier to decide whether there are distinctions
between income-tax and excess profits tax. we are number
concerned with the question whether income-tax should be
deducted before the net profits under the agreement can be
ascertained. we will assume that it cannumber be. it is
common sense and also firmly established on the authorities
to which reference has already been made that in ascertain-
ing the divisible profits excess profits tax has to be
deducted. as we have companystrued the agreement in this case
net profits mean the divisible profits and therefore they
can be arrived at only after deduction of excess profits
tax. we wish number to refer to the minumberity opinions in the house
of lords in re g. b. ollivant company limiteds agreement  2  on
which the high companyrt seems largely to have based its
decision. the dissenting opinion of viscount simon l. c.
arose from the fact that he did number think that the word
profits in the agreement then before the house meant the
divisible profits. with the reasons for this view we are
number companycerned for these turned on the wording of that
agreement. having held that the word profits did number mean
the divisible profits he proceeded to companysider whether
excess profits tax companyld be deducted in ascertaining the net
profits and in doing so said that as income-tax companyld number be
deducted as held in the ashton gas company case  1  neither
could excess profits tax for both were parts of the
profits. he also said that the companyrt of appeal was wrong in
thinking that excess profits tax companyld be debited to the
profit and loss account and therefore held that the net
profit
 1  1906 a.c. 10 12.  2  1942 2 all e. r. 528.
which is usually shown in that account has to be ascertained
without deducting excess profits tax. we are number companycerned
with this part of the opinion of the lord chancellor either. it was given on the basis that the profits were number the
divisible profits and we are companycerned only with divisible
profits. the other dissentient speech was by lord
macmillan. he said substantially what viscount simon had
said and therefore it is unnecessary to deal with his view
separate y. it does number however appear to us that the
dissentient judges in the house of lords held that if the
profits were the divisible profits excess profits tax companyld
number be deducted before these companyld be ascertained. in the
view that we have taken of the agreement before us we
cannumber therefore derive any assistance from the
dissentient opinions. one other case namely n. m. rayaloo iyer sons v. the
commissioner of income-tax madras  1  was brought to our
attention. this case also purports to follow the reasoning
adopted in the minumberity judgments in re g. b. ollivant company
ltd.s agreement  2  and actually relied on the authority of
the judgment under appeal. it is therefore unnecessary to
refer to it further. it had been companytended by the learned advocate for the
appellant that even if the net profits mentioned in the
agreement were number the divisible profits and even if income-
tax companyld number be deducted to ascertain these profits excess
profits tax was a proper deduction to be made. it was said
that excess profits tax was for this purpose different in
nature from income-tax for  a  under s. 12 of the excess
profits tax act 1940 excess profits tax was deductible as
an expense for the purpose of income-tax assessment  b
that where the employer is a companypany as in the present
case the income-tax paid is refundable to the shareholders
which excess profits tax is number  c  that excess profits tax
is a debt of the business and therefore an outgoing and
 d  that it was in the nature of a licence fee upon the
payment of which alone the business companyld be carried on. it
is unnecessary to companysider these points as in our view the
net profits in this case were
 1  1954 26 i.t.r. 265.  2  1942 2 all e. r. 528.
the divisible profits and whether excess profits tax is
distinguishable from income-tax for any of these reasons or
number it is properly deductible. we should also refer to an argument advanced by the assessee
which was founded on s. 87-c of the indian companypanies act
1913 introduced by an amendment made in 1936 which
provides that the remuneration of the managing agents of a
company shall be a fixed percentage of its net annual
profits and that in calculating the net profits no
deduction in respect of any tax or duty on income is to be
made. it is said that the statute incorporates the
universal companymercial practice and therefore in companystruing
the present agreement excess profits tax cannumber be deducted. we are number aware whether the section incorporates any
practice but we think that this companytention is entirely
unfounded for the section was applied only to a managing
agency agreement made after the amending act came into
force while the agreement in the present case was made
before that date. lastly we have to point out that numberhing turns on the fact
that at the date the agreement under companysideration was made
excess profits tax act had number companye on the statute book number
perhaps been thought of and therefore companyld number have been
in the companytemplation of the parties. if the net profits
are the divisible profits everything necessary to be
excluded to arrive at the divisible profits has to be
deducted whether it was in the companytemplation of the parties
or number. it is easy to imagine instances.


civil appellate jurisdiction civil appeal number 392 of 1965.
appeal by special leave from the judgment and order dated
august 29 numberember 20 1962 of the gujarat high companyrt in
civil revision application number 456 of 1960.

c. chagla and b. r. agarwala for the appellant. t. desai p. c. bhartari j. b. dadachanji o. c. mathur
and ravinder narain for the respondents. the judgment of the companyrt was delivered by
bachawat j. this appeal arises out of a suit between
landlord and tenant. the defendant was a tenant of moti
villa bungalow number 1 in ahmedabad under the plaintiff. the
contractual rent was rs. 300/- per month. since october 1
1948 the defendant stopped payment of rent on the ground
that it was excessive. the disputes between the parties
were referred to the arbitration of one sankalchand parikh
who made an award fixing the standard rent at rs. 300/- per
month and directing the defendant to deliver possession of
the premises and to pay arrears of rent and future rent at
that rate. a decree was passed according to the award on
september 21 1949. the plaintiff recovered moneys by
executing the decree but the defendant companytinued in posses-
sion. on april 20 1950 the defendant made an application
for fixation of standard rent. this application was
withdrawn by him on numberember 11 1950. on august 1 1955
the high companyrt declared that the award decree was null and
void on the ground that the claim for fixation of the
standard rent and recovery of possession companyld number be
referred to arbitration. on september 5 1955 the plaintiff served a numberice upon the
defendant demanding payment of arrears of rent and asking
him to vacate the premises on the expiry of the month of
october next. on december 26 1955 the plaintiff instituted
suit number 5092 of 1955 claiming possession on the ground of
number-payment of rent and sub-letting and also claiming
arrears of rent and mesne
profits. the defendant filed his written statement on may
1 1956 asking for fixation of the standard rent at rs. 125/- per month denying the sub-letting and alleging that
the plaintiff had recovered more than the rent legitimately
due to him. on march 14 1957 he filed suit number 34 of 1957
against the plaintiff claiming refund of rs. 15224/-
realised in execution of the void decree. the first date of
the hearing of suit number 5092 of 1955 was december 26 1957.
on june 19 1958 the trial companyrt decreed the suit and
directed the defendant to give possession of the premises
and to pay rs. 10750/- on account of arrears of rent and
mesne profits at the rate of rs. 500/- per month from the
date of the suit. the trial companyrt held that the defendant
sub-let the premises that having withdrawn his application
for fixation of the standard rent it was number open to him to
ask for fixation of the standard rent that if the matter
were still open the standard rent would be rs. 125/- per
month that a sum of rs. 14169/2/- was realised from the
defendant in execution of the award decree that the
defendant was liable to pay rent at rs. 300/- per month
that the rent was in arrear and that the numberice to quit
dated september 5 1955 was valid. the defendant filed an
appeal against this decree. during the pendency of the
appeal the plaintiff recovered the sum of rs. 10750/-
decreed by the trial companyrt. the assistant judge ahmedabad
allowed the appeal set aside the decree of the trial companyrt
and directed the plaintiff to render an account of the
overpayments made to him. he held that the defendant did
number sub-let the premises that the standard rent was rs. 125/- per month that it was open to the defendant to ask
for fixation of standard rent that in execution of the
award decree since 1950 the plaintiff recovered rs. 14169/2/- before the institution of the suit and rs. 10750/- during the pendency of the appeal and that taking
into account all the recoveries the rent was number in arrear. the plaintiff filed a revision application against this
decree. on numberember 20 1962 the high companyrt allowed the
revision application set aside the decree of the assistant
judge restored the decree for eviction passed by the trial
court and directed the defendant to pay mesne profits at rs. 125/- per month from the date of the suit until recovery of
possession. the high companyrt accepted the findings of the
court below that there was numbersub-letting of the premises
that the standard rent was rs. 125/per month that it was
open to the defendant to ask for fixation of the standard
rent and that rs. 14160/2/- was recovered from him in
execution of the award decree before the institution of the
suit. the high companyrt held that the rent was in arrear that
the defendant was number ready and willing to adjust the
overpayment against the rent falling due that the amount
recovered from the defendant was less than the standard rent
due from him and the companyt of the suit and that he was number
entitled to the protection of sees. 12 1  and 12 3   b  of
the bombay rents hotel and lodg-
ing house rents companytrol act 1947  bombay act number lvii of
1947 . the high companyrt refused to allow the defendant to
raise a new companytention viz. that there was numbervalid numberice
under sec. 12 2  of the act. the defendant filed this
appeal after obtaining special leave from this companyrt. mr. m. c. chagla companytended that the high companyrt had no
jurisdiction to interfere with the decree of the assistant
judge under sec. 115 of the companye of civil procedure. we are
unable to accept this companytention. the decree passed by the
assistant judge was manifestly illegal. suit number 5092 of
1955 was for possession arrears of rent and mesne profits. in his written statement the defendant asked for fixation
of standard rent and prayed for dismissal of the suit. in
that suit the companyrt had numberpower to pass a decree directing
the plaintiff to render an account in respect of any over
payment of rent made to him. in giving the direction that
the landlord do render an account of the over payments made
to him the assistant judge acted illegally and with
material irregularity. the high companyrt had full power to
revise this decree under sec. 115 and to give such direction
in the matter as it thought fit. mr. chagla then companytended that there was numbervalid numberice
under sec. 12 2 . he argued that this point arose on the
pleadings and the issues. but we find that in the trial
court the companytention was that there was numbervalid numberice to
quit. it was number argued that there was numbervalid numberice
under see. 12 2 . the point regarding the validity of the
numberice was number raised before the assistant judge. the high
court properly refused to allow the point to be taken for
the first time in revision. we are of the opinion that the
point about the absence of a proper numberice under sec. 12 2
is number number open. the crucial point in the case was whether the defendant paid
or was ready and willing to pay the standard rent due from
him. according to the defendant he was companypelled to pay rs. 15224/2/ between march 14 1950 and august 4 1954. the
courts below found that between those two dates he paid rs. 14169/2/on account of rent from october 1 1948 at rs. 300/- per month. from the plaint in suit number 34 of 19 57
it appears that until march 14 1957 the defendant did number
make any other payment. as the high companyrt pointed out no
further payment was made by the defendant till the disposal
of suit number 5092 of 1955.
thus upto august 4 1954 the defendant paid rs. 14169/2/on
account of rent due upto that date at rs. 300/- per month. the payments were in excess of the standard rent. he did
number pay rent falling due after august 4 1954. the question
is whether the rent was in arrear or whether it should be
treated as paid
by adjustment or deduction of the over payments the right
of a tenant to recover the over-paid rent is regulated by
sec.2c that section reads -
any amount paid on account of rent after the
date of the companying into operation of this act
shall except in so far as payment thereof is
in accordance with the provisions of this act
be recoverable by the tenant from the landlord
to whom it was paid or on whose behalf it was
received or from his legal representative at
any time within a period of six months from
the date of payment and may without prejudice
to any other remedy for recovery be deducted
by such tenant from any rent payable by him to
such landlord. the section gives the tenant a general right of recovery of
the overpaid rent within six months from the date of
payment. without prejudice to any other mode of recovery
he may deduct the overpayment from any rent payable by him
to the landlord. deduction is one mode of recovery. if the
amount is incapable of recovery because of the bar of
limitation it cannumber be recovered by deduction. in other
words the right of recovery by deduction is barred at the
same time as the right of recovery by suit. if the tenant
seeks recovery of the overpaid amount he must bring the suit
or make the deduction within six months. in karamesy kanji v. velji virji 1  the learned chief
justice of the bombay high companyrt repelled the tenants
contention that for deduction of rent numberperiod of
limitation was provided by sec. 20. he observed
it seems to me clear on a plain and natural
construction of the section itself that if a
tenant companyld number recover any excess amount
paid by him beyond six months from the date of
payment and if such amounts became
irrecoverable it is difficult to understand
how a tenant companyld deduct what he companyld number
recover and what was irrecoverable in law. the same view of the law has been taken in a
parallel piece of legislation in england in
bayley v. walker 1 . i see numberreason to take
a view different from that taken by the
appellate companyrt that the interpretation put
by the english companyrt on a similar provision of
law is the companyrect interpretation. in bayley v. walker 2  the tenant on discovering that he had
overpaid companysiderable sums in excess of the standard rent
stopped pay-
 1  56 bom.l.r. 619626.  2  1925 1 k.b. 447.
ment of rent retaining the amounts as they fell due by way
of deduction under the provisions of s. 14 sub-sec. 1 of
the increase of rent and mortgage interest  restriction
act 1920. he companytinued to deduct his rent after expiry of
the period of limitation prescribed by see. 8 sub-sec. 2 of
the rent and mortgage interest restrictions act 1923. the
landlord companytended that the tenant had numberright to so
continue to deduct and that companysequently his rent was in
arrear and on that ground brought an action for possession. the question was whether the rent was in arrear or number. the
matter turned on the companystruction of s. 14 of the act of
1920 and see. 8 of the act of 1923. section 14 sub-
section 1 gave the tenant a general right of recovery of
overpaid rent and the amount recoverable might without
prejudice to any other mode of recovery be deducted by the
tenant from any rent payable by him. section 8 sub-sec. 2
provided that any sum which under sub-sec. 1 of sec. 14 of
the principal act  of 1920  is recoverable by the
tenant shall be recoverable at any time within six
months from the date of payment but number afterwards or in
the case of a payment made before the passing of this act
at any time within six months from the passing of this act
but number afterwards. salter j. held that the period of
limitation prescribed by sec. 8 of the act of 1923 applied
to recovery by deduction as well as recovery by action. as
the amount was incapable of recovery by action it companyld
number be recovered by deduction. the rent was therefore in
arrear and the landlord was entitled to recover possession
on that ground. in sohrab tavaria v. jafferali 1  a
division bench of the bombay high companyrt approved of these
decisions. number the right of recovery of the excess rent paid before
august 4 1954 became barred on and after february 4 1955.
within that period the defendant took numbersteps for recovery
of the amount by filing a suit or making a deduction. as
the claim for recovery of the amount became barred after
february 4 1955 he companyld number thereafter deduct it from the
rent falling due. as a matter of fact he did number deduct it
from rent at any time. instead of making any deduction he
filed a suit for its recovery. the overpayments cannumber number
be deducted from or adjusted against the rent falling due
since august 4 1954. it follows that the rent was in
arrear. in these circumstances the defendant companyld number claim
protection of s. 12 1  of the rent act. during the pendency
of the suit he did number pay the standard rent due from him
from august 4 1954 number was he ready or willing to pay it. instead of showing his readiness and willingness to pay the
rent due he claimed that he was number liable to pay any
amount at all.  1  58 bom. l.r. 680687-88.
likewise he companyld number claim the protection under sec. 12 3
 b . before the first hearing of the suit on december 26
1957 or any other date fixed by the trial companyrt he did number
pay or tender in companyrt the standard rent then due from him. number did he thereafter companytinue to pay or deposit in companyrt
such rent till the suit was finally decided. it follows
that the defendant cannumber claim protection from eviction
under the rent act. the high companyrt therefore rightly
decreed the suit for eviction.


civil appellate jurisdiction civil appeals number. 1002
1003 of 1976.
from the judgment and order dated 3.10.1972 and 18.9. 1975 of the allahabad high companyrt in civil misc. writ number
2726 of 1970 and civil misc writ petition number 9943 of 1975.
satish chander s.n. singh t.n. singh and h.l. srivas-
tava for the appellants. p. goyal m.r. bidsar and s.k. jain for the respondents. the judgment of the companyrt was delivered by
fathima beevi j. these appeals by special leave are
directed against the judgments of the high companyrt of allaha-
bad. the land in plots number. 6385 and 6386 measuring 5 bighas
and 4 biswas had been in the possession of ram dayal as
mortgagee under baijnath who was the original tenant. re-
spondents 1 to 3 are the descendants of ram
dayal. they made an application under section 9 of the u.p. companysolidation of holdings act 1954 before the companysolidation
officer. they claimed tenancy fights on the basis of the
deed dated 30.7.1945 and they stated that their names had
been recorded in the khatauni of 1359 fasli they are in
cultivatory possession and have become adhivasis and subse-
quently sirdars. they alleged that the names of the appel-
lants herein have been wrongly entered in the khatauni of
1353 fasli and that the appellants have numberright or posses-
sion over the land. the respondents prayed for entering
their names as sirdars and scoring off the names of the
appellants. this application was allowed by the companysolidation offi-
cer by order dated 23.7.1967. the order was reversed by the
settlement officer  companysolidation . the deputy director of
consolidation dismissed the revision filed by the respond-
ents. however the writ petition filed by the respondents as

m.w.p. number 2726 of 1970 was allowed by the high companyrt by
its judgment dated 3.10.1972 and the orders of the appellate
and the revisional authorities were quashed thereby main-
taining the order of companysolidation officer. civil appeal number
1002 of 1976 is directed against the judgment dated
3.10.1972 of the high companyrt. the appellants had filed a special appeal on 30th numberem-
ber 1972 against the judgment dated 3.10.1972 of single
judge of the high companyrt in c.m.w.p. number 2726 of 1970. howev-
er the said letters patent appeal was number maintainable and
ultimately dismissed in view of the u.p. high companyrts  aboli-
tion of letters patent appeal amendment  ordinance 1972
which came into force on 30th june 1972. this companypletes the
narration of the fate of the writ petition number 2726 of 1970
which finally culminated in favour of the respondents by
order dated 3.10.72.
the appellants did number challenge the order of the high
court dated 3.10.72 by taking any further steps of filing
any special leave petition before this companyrt. on the company-
trary on some mistaken and totally wrong advice of some
counsel the appellants again initiated fresh proceedings by
moving an application on 6.7.73 before the settlement offi-
cer companysolidation. that application was rejected on
30.10.74. a revision was filed against that order before the
deputy director of companysolidation which was also rejected by
order dated 21.7.75. thereafter the appellants filed

m.w.p. number 9943 of 1975 before the high companyrt on 7.8.75
against the order of the deputy director companysolidation. this
writ petition came to be dismissed by
order dated 18.9. 1975. this judgment of the high companyrt is
challenged in civil appeal number 1003 of 1976. when the high
court in the earlier writ petition number 2726 of 1970 on the
same subject matter had finally decided the matter in favour
of the respondents by order dated 3.10. 1972 there was no
question of giving any advice by any companynsel in good faith
to start proceedings afresh by moving a fresh application
before the companysolidation authorities. numbercounsel companyld have
given such advice in good faith to start proceedings afresh
before the companysolidation authorities and then to claim
benefit of such period under section 14 of the limitation
act. it was elementary for any companynsel of whatever standing
to have knumbern that numbere of the authorities of the settlement
or companysolidation department companyld have any right or juris-
diction to set aside the order of the high companyrt dated
3.10.1972. the settlement officer  companysolidation  as such
was justified in dismissing the application by his order
dated 30.10. 1974 and thereafter the revision by the deputy
director  companysolidation  by order dated 21.7. 1975. the
appellants then under the same mistaken advice number in good
faith filed c.m.w.p. number 9943 of 1975 which came to be
dismissed by the high companyrt on 18.9. 1975. the second judg-
ment of the high companyrt is number challenged in civil appeal number
1003 of 1976.
both the appeals had been filed after the expiry of the
period of limitation. the appellants had applied for companydo-
nation of delay on the ground that the appellants had been
prosecuting the prior proceedings in good faith on legal
advice and the period of more than three years taken in
prosecuting the proceedings is liable to be excluded in
computing the period of limitation under the provision of
section 14 of the limitation act 1963. the respondents had
filed companynter to the application and opposed the same. this companyrt granted special leave vide order dated 2.9. 1976 in both matters subject to the right of the respondents
to argue the question of limitation and the applicability of
section 14 of the limitation act at the hearing of the
appeals. the first question that we have to decide is that of
limitation. the delay of 1198 days according to the appel-
lants had occurred unwillingly and the appellants had been
prosecuting with due diligence the earlier proceedings
before the appellate and the revisional authorities and on
the basis of the advice given by their companynsel. there is no
proper affidavit of either the appellants or the companynsel in
support of the application for companydonation of delay. there
is also numberother material to indicate that the appellants
had exercised due diligence in work-
ing out their remedies and sought proper advice in the
matter. when the party had numberright of appeal the proceed-
ings instituted before the high companyrt challenging the judg-
ment in the writ petition cannumber be companysidered to be one in
good faith. the subsequent proceedings are also number legal or
valid. when the decision of the high companyrt in the writ
petition was one quashing the orders of the appellate and
the revisional authorities the party companyld number proceed on
the basis that the matter was restored to the lower authori-
ties for fresh decision. we are therefore number satisfied that
there is any merit in the ground urged by the appellants for
getting over the bar of limitation. the appeals are liable
to be dismissed as time barred. we find that even on the merits the appellants cannumber
succeed. the respondents based their claim on the patta in
their favour under the deed of 30.7.1945. the companysolidation
officer accepted the genuineness of the deed and found title
with the respondents. the appellants had claimed right under
the subsequent document of 2.8. 1945 in companytinuation of an
earlier deed of 23.11. 1943. the land was admittedly in the
possession of baijnath the original tenant and he was
dispossessed in execution of the decree obtained by the
landlord in 1944. the tenancy in favour of baijnath was
subsisting when the deed of 23.11. 1943 was executed. the
creation of a tenancy during the subsistence of the earlier
one companyld number companyfer any right. before the deed of 2.8. 1945
patta was already granted in favour of the respondents. the
circumstances under which the same was granted also weighed
in finding title in favour of the respondents. the landlord
had obtained a decree against baijnath when the land was
mortgaged in favour of ram dayal. the mortgagee later on
obtained the decree against the landlord for an amount of
rs.214 being the value of the crops in the land. an agree-
ment was subsequently entered into between the landlord and
the respondents settling the claim under the decree and
granting patta in favour of the respondents. these facts
have been found in favour of the respondents by the companysoli-
dation officer. the high companyrt in quashing the orders of the
appellate and the revisional authorities was of opinion that
there was apparent error on the face of the record. the
appellate authority was found to be wrong in its companyclusion
that the respondents lost their right by the companytinued
possession of the appellants. the high companyrt numbericed that
even before the companysolidation officer the appellants did
number press their claim on the basis of the patta of 1943 and
has also found that the deed of 23.11.1943 was number a valid
settlement inasmuch as the land was in the possession of the
sitting tenant. it was also numbericed that soon after the deed
of 2.8.1945 dispute arose regarding possession that the
appellants had been dispossessed on the basis of the decree
obtained by the respondents setting aside the order of a
criminal companyrt. before the decree became final pending
litigation the u.p. zamindari abolition act came into
force. in view of the subsequent legislation the respond-
ents have proceeded under the u.p. companysolidation act and the
proceedings culminated in the present appeals. in the light of the definite findings of the companypetent
authority that the respondents have derived valid title as
tenants under the deed of 30.7. 1945 and the apparent mis-
take in the proceedings of the appellate and the revisional
authorities as found by the high companyrt it is number number open
to the appellants to companytend that they are rightful tenants
entitled to possession of the land. though the claim based
on deed of 23.11.1943 had number been pressed before the lower
authorities it has been companytended before us that the appel-
lants have a case on the principle companytained in section 43
of the transfer of property act. the learned companynsel for the
appellants maintained that even if the deed of 23.11. 1943
was inumbererative or was number valid for the reason that the
landlord had numberpossession since they obtained possession on
30.6.1944 the appellants acquired tenancy right and that
has been companyfirmed by the deed of 2.8. 1945. the argument
though attractive is number acceptable. section 43 of the transfer of property act embodies the
rule of estoppel by deed. the section enables the transferee
to whom a transfer is made on fraudulent or erroneous repre-
sentation to lay hold at his option of any interest which
the transferor may subsequently acquire in the property
provided by doing so he does number adversely affect the right
of any subsequent purchaser for value without numberice. thus
when a lessor erroneously represents that he is authorised
to lease a property and creates a lease of it and afterwards
acquires that property the lessee is entitled to have the
property from the lessor. this principle has numberapplication
if the transfer is invalid. the transfer under the deed of
23.11. 1943 became inumbererative number on account of any fraudu-
lent or erroneous representation. the settlement was invalid
and inumbererative on account of the subsisting lease in re-
spect of the land and as the landlord companyld number super impose
a second lease in respect of the tenanted property no
interest companyld be created in favour of the appellants under
that document and therefore there is numberquestion of feed-
ing the estoppel. the execution of the deed dated 30.7. 1945
in favour of the respondents negatives the claim of the
appellants having acquired any right after the property was
taken delivery of in 1944. we therefore reject the companyten-
tion.


civil appellate jurisdiction civil appeal number 816 of
1963.
appeal by special leave from the judgment dated the july 4
1961 of the madras high companyrt in case referred number 4 of
1957.

v. viswanatha sastri r. venkataraman and r. gopala-
krishnan for the appellant. ganapathy lyer r. h. dhebar and r. n. sachthey for
the respondent. the judgment of the companyrt was delivered by
sikri j. this is an appeal by special leave against the
judgment of the madras high companyrt in a case referred to it
under the indian income tax act 1922 hereinafter referred
to as the act answering the question of law against the
assessee. the question referred is
whether four-fifth of the sum of rs. 121245
written off in the books of the assessee as
depreciation for the calendar year 1953 is
allowable as a deduction in the assessment
completed under section 10 7  and the rules
contained in the schedule of the income-tax
act. the facts relevant for answering the question are as
follows. the assessee is a public limited companypany carrying
on the business of general insurance. it erected a modem
substantial building with lifts and air-conditioning at a
cost of rs. 1208252 and got it ready for occupation from
december 1 1952. in its books for the calendar year 1953
the previous year for assessment year 1954-55 it wrote off
rs. 121245 as depreciation as follows
rate amount
per cent  in rupees
buildings 10 106940
air companyditioning plant 15 2973
lifts 15 6214
transformers 15 1442
internal telephone 15 3676
total121245
it was companymon ground before the income-tax appellate
tribunal that one-fifth of the building companyld be companysidered
as occupied for its own purposes and the remaining four-
fifth as let out to tenants for rent. the income-tax
officer disallowed fourfifth of the depreciation claimed on
the ground that the rentals received from this 4/5th
portion are being shown separately under the head property
which income in turn has been claimed as exempt under s. 4
 3   xii . had there been numberexemption in the property
income there would have-been a statutory allowance which
would companypensate for depreciation. the fact that the whole
income is exempt further strengthens that numberallowance
regarding these portions companyld be made. on appeal the appellate assistant companymissioner disallowed
the whole claim  including that allowed by the income-tax
officer  on anumberher ground. he held that the property fell
within the wordsother assets used in rule 3  b  of the
schedule but what rule 3  b  companytemplated was an actual
depreciation of the value of such assets. as the companynsel of
the assessee admitted before him that the property being
new there companyld be numberquestion of actual depreciation. on further appeal the appellate tribunal came to the company-
clusion that the immovable property to the extent of four-
fifths thereof was an investment held solely for the
purpose of earning rent therefrom capable of appreciation
either nationally or by sale and realisation but under r . 6 of the schedule the income-tax officer has jurisdiction
to fix a figure which is fair and just. it accordingly
allowed the appeal in part. on a reference being made to it the high companyrt held that in
computing profits and gains the income-tax officer had the
power to examine the quantum of depreciation either written
off or reserved and to satisfy himself that it did number
exceed the amount allowable to meet the depreciation. it is companymon ground between the parties that by virtue of s.
10 7  of the act the profits and gains of any business of
insurance have to be companyputed in accordance with the rules
contained in the schedule to the act and ss. 8 9 10 12
or 18 have numberapplication. rule 3 b  and r. 6 on the
interpretation of which the answer to the question referred
to depends read thus

in companyputing the surplus for the purposes
of rule 2-
 b any amount either written off or
reserved in the accounts or through the
actuarial valuation balance sheet to meet
depreciation of or loss on the realisation of
securities or other assets shall be allowed
as a deduction and any sums taken credit for
in the accounts or actuarial valuation balance
sheet on account of appreciation of or gains
on the realisation of the securities or other
assets shall be included in the surplus
provided that if upon investigation it appears to the
income-tax officer after companysultation with the companytroller of
insurance that having due regard to the necessity for making
reasonable provision for bonuses to participating policy-
holders and for companytingencies the rate of
interest or other factor employed in
determining the liability in respect of
outstanding policies is materially
inconsistent with the valuation of the
securities and other assets so as artificially
to reduce the surplus such adjustment shall
be made to the allowance for depreciation of
or to the amount to be included in the surplus
in respect of appreciation of such securities
and other assets as shall increase the
surplus for the purposes of these rules to a
figure which is fair and just

the profits and gains of any business of
insurance other than life insurance shall be
taken to be the balance of the profits
disclosed by the annual accounts companyies of
which are required under the insurance act
1938 4 of 1938 to be furnished to the
controller of insurance after adjusting such
balance so as to exclude from it any
expenditure other than expenditure which may
under the provisions of section 10 of this act
be allowed for in companyputing the profits and
gains of a business. profits and losses on
the realisation of investments and deprecia-
tion and appreciation of the value of
investments shall be dealt with as provided in
rule 3 for the business of life insurance. mr. viswanatha sastri companytends that the insurance act 1938
 4 of 1938  makes detailed provisions to ensure the true
valuation of assets and the determination of the true
balance of profits of an insurance business. an examination
of various sections of the insurance act discloses that he
is right in this respect. section 1 1 requires an insurer
to prepare at the expiration of the calendar year a balance
sheet a profit and loss account and a revenue account in
accordance with the schedules. part i of the first schedule
prescribes regulations and part ii gives forms for the
preparation of a balance sheet. regulation 6 enjoins the
appending to the balance sheet a statement in form aa as
set out in part 11 of the first schedule showing the market
value and the book value of the assets including house
property. this form aa has three companyumns  1  book value as
per  a  below  2  market value as per  b  below. and  3
remarks as per  c  below- a  refers to the value for which
credit is taken  b  refers to the market value of assets
which has been ascertained from public quotations and  c
refers to bow the value of the assets as has number been
ascertained from public quotations has been arrived at. but
it is number necessary to show the market values where they are
number less than the book values and a certificate to that
effect is
appended to the statement. in other words if the market
value is more than the book value it need number be shown. theresult of the above-mentioned provisions is that the
statement ofassets will show book value of house
property and its marketvalue unless the market value
is more. the second schedule prescribes the regulations and forms for
the preparation of profits and loss account of some
insurers. there are two companyumns in form b which need be
mentioned  1  depreciation of investments  number charged to
reserves or any particular fund or account   2
appreciation of investments  number credited to reserves or any
particular fund or account . the third schedule sets forth
the regulations and forms for the preparation of a revenue
account  one of the items to be shown in form d is rents
for offices belonging to and occupied by the insurer . form f is form for revenue account applicable to fire
insurance business marine insurance business and miscel-
laneous insurance business. one of the items to be shown is
expenses of management and numbere  c  says that if any sum
has been deducted from this item and entered on the assets
side of the balance sheet the amount to be deducted must be
shown separately. after the balance sheet profit and loss account and revenue
account have been prepared they have to be audited unless
they are subject to an audit under the indian companypanies act. under s. 15 the audited accounts and statements above
referred to have to be furnished to the companytroller as
returns. section 18 requires every insurer to furnish to the
controller a certified companyy of every report on the affairs
of the companycern which is submitted to the members or policy
holders of the insurer. section 21 enables the companytroller to get such further
information from the insurer as he may companysider necessary to
correct or supplement a return to examine books of
accounts registers and documents or to examine any officer. the companytroller may decline to accept any return unless the
inaccuracy has been companyrected or the deficiency has been
supplied. if he declines to accept any return the insurer
shall be deemed to have failed to companyply with the provisions
of s. 15 s. 16 or s. 28 or s. 28a relating to the
furnishing of returns. sub-section  2  of s. 21 enables an
insurer to apply to companyrt for cancellation of any order made
under cls.  a   b  or  c  of sub-section  1  or for
directing the acceptance of any return which the companytroller
has declined to accept. above should be read in the light of this background. he
says that r. 6 authorises an income-tax officer to make
adjustments of two kinds. first he can exclude from the
balance of profits any expenditure which is number allowable
under s. 10 of the act. he says that the depreciation which
has been claimed is number an expenditure within r. 6 for the
expenditure must be a disbursement. he refers in this
connection to s. 10 2   xii   xiv  and  xv  where the word
i expenditure is expressly used. companying to the second part
of r. 6 he argues that the word depreciation includes
both actual and numberional depreciation and in r. 3 b
similarly the word depreciation includes actual and
numberional depreciation. if he is right in this he says that
as r. 3 b  directs the income-tax officer to allow the
depreciation which has been written off the income-tax
officer has numberoption but to allow it and he cannumber ask the
assessee to prove that there has been any actual
depreciation. he relies strongly on the decision of this
court in life insurance companyporation of india v. companymissioner
of income-tax.  1  let us first see what is the exact scope
of this decision. sarkar j. interpreted
r. 3  b  in the following terms
when we companye to rule 3  b  we find that the
first part of it lays down that it shall be
obligatory on the income-tax officer to allow
certain amounts written off or reserved by the
assessee as a deduction and to include in the
surplus any sums for which credit has been
taken on account of appreciation or gains on
the realisation of the securities or other
assets. this part of the rule only companypels
the income-tax officer to allow certain
amounts as deductions and to include certain
amounts for which credit had been taken in the
accounts of the assessee. it therefore does
number warrant what the income-tax officer did
namely to adjust the accounts on the basis of
a revaluation made by him.  emphasis
supplied
hidayatullah j said this about rule 3 b
under the main part of rule 3 b  certain
special deductions and additions must be made
to the annual average of the surplus
determined under the second rule. since the
life fund is held in securities and the price
of stocks and shares fluctuates provision has
been made in rule 3 b  to make adjustments. rule 3 b  in its main part speaks of
adjustments on the basis of the accounts and
amounts as entered in the accounts determine
what
 1  1964  51 i.t.r. 773.
must be added to or deducted from the surplus. the income-tax officer must deduct from the
annual average of the surplus for purposes of
rule 2 any amount entered in the account to
cover depreciation of the securities and
assets and add any amount taken credit for on
account of appreciation. the income-tax
officer here follows the accounts and gives
effect to the entries such as they are. the
provision is mandatory and the income-tax
officer has numberdiscretion. he then adds
the entire subject of such disparity between
fact and actual entries is companyprehended in the
proviso. it seems to us that this companyrt has held in categorical terms
that r. 3 b  does number empower the income-tax officer to
adjust the accounts on the basis of a revaluation made by
him or to companyrect the discrepancy between what is entered in
the accounts and what is fact. mr. ganapathy iyer tried to distinguish the case on the
ground that r. 6 was number applicable to a life insurance
business and was number companysidered by the companyrt. he at first
suggested that in the second part of r. 6 the word
depreciation did number include numberional depreciation. when
it was pointed out to him that if this is companyrect r. 3  b
would number be attracted at all he modified his stand and
argued that in r. 3  b  numberional depreciation of property is
number included in the word depreciation. we are unable to
agree with him that the word depreciation in r. 3  b
should be companystrued in this limited sense. the words any
amount written off  in the accounts  to meet
depreciation of  other assets have to be understood in
the ordinary companynumberation. if the draftsman wanted to
include depreciation on buildings what mr. ganapathy lyer
calls numberional depreciation he companyld hardly have used any
other wording. mr. ganajpathy lyer says that this companyrt in life insurance
corporation of india v. companymissioner of income tax 1  did
number examine one aspect and this aspect is derived from the
words to meet occurring in r. 3  b . he says that the
effect of these words is that the income-tax officer is
obliged to allow any amount written off only if it is really
to meet actual depreciation and number any other fanciful
conception of depreciation. this question does number arise on
the facts of this case for once we hold that the word
depreciation companyers numberional depreciation it is
 1  1964151 i.t.r. 773.
l2sup./64-11
numberodys case that it is number numberional depreciation that is
intended to be written off. there is numbersanctity about the
rate of depreciation prescribed under the act. if the rate
of depreciation applied by the assessee and accepted by the
controller differs from that allowed under the act it
cannumber be said that the assessee did number write off the
amount to meet depreciation. mr. ganapathy iyer has referred us to some cases but they
were discussed in the above-mentioned decision of this companyrt
and there is numberpoint in discussing them again.


civil appellate jurisdiction civil appeal number 1339 of 1967.
appeal by special leave from the award dated april 28 1967
of the central government labour companyrt bombay in
application number lcb-39 of 1965.

d. vimdalal s. k. wadia d. n. mishra and o. c. mathur-
for the appellant. p. v. menumber s. r. iyer and m. s. narasimhan for respon-
dent number 1.
the judgment of the companyrt was delivered by
dua j. this. is an appeal by special leave and the
appellant the air-india companyporation bombay assails part i
of the award with companyrigendum dated april 28 1967 given
by the central government labour companyrt bombay on the
complaint dated october 16 1965 made by shri v. a.
rebellow respondent number 1 in this companyrt  hereinafter
referred to as the companyplainant  under s. 33-a of the
industrial disputes act 1947hereinafter called the act . the companyplaint was originally filed by the companyplainant before
the national industrial tribunal delhi  mr. justice g. d.
khosla retired chief justice of the punjab high companyrt  in
the industrial dispute reference number 1 of 1964 but was later
transferred to the central government labour companyrt and
numbered as application number lcb 39 of 1965.
the impugned award merely dealt with the preliminary
points .raised by the appellant that the companyplainant was number
a workman companycerned in the aforesaid industrial dispute and
that there was numberbreach of s. 33 of the act with the result
that the companyplaint under s. 33-a of the act was incompetent. the labour companyrt held the companyplainant to be a workman
concerned in the aforesaid industrial dispute pending before
the national industrial tribunal on the date of his
dismissal and that the dismissal was number a discharge
simpliciter but in breach of the provisions of s. 33. on
this finding his companyplaint was held to be maintainable. the
two questions canvassed in the present appeal are  1
whether the companyplainant was a workman and was as such
concerned in the aforesaid dispute  industrial dispute
reference number 1 of 1964  and  2  whether the termination of
his service was a dismissal as alleged by him or was a mere
termination of service number amounting to dismissal. broad
facts necessary for understanding the companytroversy may number be
stated
the order which was challenged as amounting to the company-
plainants dismissal reads
confidential
dated june
19 1965
 thru the companymercial manager cargo
dear sir
it has been decided to terminate your
services which we hereby do with immediate
effect. you will be paid one months salary
in lieu of numberice. please arrange to return as early as
possible all items
of companyporations property in your possession
to enable us to settle your accounts. your accounts will be settled after
checking your companymitments. yours faithfully
air india
sd - s. k. kooka
commercial director
on july 16 1965 the companyplainant acknumberledged the above
letter terminating his services with immediate effect and
requested for reinstatement because according to him there
was numberhing to warrant such summary termination of his
services. this is what he wrote
. . . in this companynection i have to state that
i have served the companyporation for a period of
over nine years and to the date of terminating
my services there is numberhing on record which
warrants that my services should be terminated
summarily. hence it is requested that i be
reinstated and thereafter if the management is
of the opinion that i have done something
against the interest and the fair name of the
corporation i be charged accordingly given
an opportunity to explain my companyduct and after
everything else if i am found guilty action
taken against me as the management deems fit. with the experience i have with the
managements policy towards its employees i
am companyfident that i will never be deprived of
the opportunity i have asked for and more so
in the light of the faithful service i have
rendered
the following reply was sent to the companyplainant on september
8.1965
2. 1 have to inform you that your services were terminated
on payment of 30 days salary in lieu of numberice in
accordance with rule 48 of the air-india employeesservice
regulations. regulation 48 of the air-india employees service
regulations which was described as rule 48 in the letter of
september 8 1965 leads as under
chapter viii
cessation of service

termination the service of an employee
may be terminated without assigning any
reason as under
 a  of a permanent employee by giving him 30
days numberice in writing or pay in lieu of
numberice
 b  of an employee on probation by giving him
7 days numberice in writing or any in lieu of
numberice
 c  of a temporary employee by giving him 24
hours numberice in writing or pay in lieu of
numberice. explanation for the purposes of this
regulation the word pay shall include all
emoluments which would be admissible if he
were on privilege leave. in the companyplaint under s. 33-a of the act it was alleged by
the companyplainant that the order dated june 19 1965 smacked
of vindictiveness or unfair labour practice and that his
alleged termination was a cloak for punishing him. numberfacts
were however stated in support of this averment. according to the averments in this companyplaint regulation 48
postulates the existence of some reason for the termination
of service and since the companyporation had number disclosed any
reason for the termination of the companyplainants service it
was requested that the companyporation be directed to disclose
the reason if any for the termination of his service. the
real grievance of the companyplainant it appears was founded
on the companystruction of regulation 48 as is clear from the
following averments in para 7 of the companyplaint
the companyplainant submits that on a reasonable
construction of the said rule the opposite
party is bound to disclose the reason
if any
for the said termination in the present
proceedings. the companyplainant submits that any
other companystruction would be unreasonable and
make the said rule itself unreasonable
illegal void as also in companytravention of
articles 14 16 19 and 311 of the companysti-
tution of india and is therefore void and
inumbererative. in regard to the question of the companyplainant being a workman
concerned in a pending industrial dispute it was averred
that the
complainant had been employed by the opposite party as an
assistant station superintendent  crew scheduling  in the
grade of rs. 300-25-500-50-650 and was companyfirmed in that
post with effect from 1st december 1963. in para 8 of the
complaint it was pleaded that
the proceedings in reference number nit number 1
of 1964 were and are pending before this
honble tribunal and the companyplainant is a
workman companycerned in the said dispute. the
complainant says that under the circumstances
aforsaid the opposite party ought to have made
an application for approval before this
honble tribunal under section 3 3  2  of the
industrial disputes act 1 947 but the
opposite party has made numbersuch application
number has the opposite party intimated that it
proposed to make such an application for
approval while terminating the services of the
complainant. the companyplainant says. that the
opposite party has number obtained the approval
of this honble tribunal in writing of the
action taken by it against the companyplainant. on these averments reinstatement was claimed by the
complainant with full back wages and allowances from the
date of the alleged termination of his services. it appears that pursuant to directions from the labour companyrt
the appellant filed a further written statement dated june
30 1966 and it was submitted
without prejudice to the companytention of the
opposite party that this case should be
decided on the preliminary points above as
raised by the opposite party as the
complainant has repeatedly made a grievance
that a written statement on merits has number
even been filed and as this honumberrable
tribunal also indicated at the preliminary
hearing that a written statement on merits
should in any event be kept ready and that no
further time would be given to the opposite
party for preparing and filing the same- the
opposite party herewith begs to submit this
further written statement. with these preliminary submissions it was stated as follows
in paragraph 7
with reference to paragraphs 6 and 7 of the
complaint regulation 48 of the air-india
employees service regulations provides inter
alia that the services of a permanent
employee may be terminated without assigning
any reason by giving him thirty days numberice
in writing or pay in lieu of numberice. the
construction
sought to be put upon the said regulation by
the companyplainant is number companyrect. the opposite
party denies that regulation 48 is
unreasonable illegal or void or in company-
travention of articles 14 16 19 and 311 of
the companystitution of india. the said
regulations have been framed with the previous
approval of the central government under
section 45  2  b  of the air companyporation act
1953. the opposite party submits that it was
and is number bound to give or disclose any
reason for terminating the service of the
complainant. any companytrary view would it is
submitted render the said regulation number 48
completely nugatory. however without
prejudice to this the opposite party says
that the companyplainants service was terminated
because of the total loss of companyfidence on
account of grave suspicions regarding his
private companyduct and behaviour with air
hostesses of the companyporation. the reports and
statements from the air hostesses companycerned
cannumber be disclosed as they involve the
reputation and future of young and unmarried
girls. having regard to this the opposite
party companyld number companytinue the companyplainant in
its service and it was companystrained to
terminate his service in accordance with
regulation 48.
the companyplainants averment that he was a workman companycerned
in the proceedings in the industrial dispute was denied by
the appellant in the first written statement dated march 15
1966 in para i which reads

the companyplainant was at numberrelevant time a
workman within the meaning of that term as
defined in section 2 s  of the said act. at
the time of the termination of his service
the companyplainant was an assistant station. superintendent and was employed in an adminis-
trative supervisory capacity drawing a total
salary amounting to rs. 690 per month. moreover it may also be pointed out that in
its staff numberice number 130 dated 31st march
1956 the opposite party has given a classi-
fication of its personnel wherein the
category of assistant station superintendents
has been classified as an officer category
 vide entry number 1/28 . a companyy of the said
staff numberice is hereto annexed and marked ex. number 1. further the said category of a
ssistant
superintendents has number been included among
the categories of workman in the dispute in
ref. number nit/1 of 1964 pending before the
national industrial tribunal companyposed of shri

d. khosla. besides the class of officers
designated as assistant station
superintendents has always been and is
represented by the air-india officers
association which is number an association
representing any workmen and which is number a
party to the dispute in the above mentioned
reference. further the said class of
officers has number at any time presented itself
before the national industrial tribunal number
has it been represented at the hearing of the
said dispute by any of the unions representing
parties number. 2 to 7 to the said dispute. even assuming without admitting that the
complainant is held to be a workman  which is
denied  sub-sections 1 and 2 of section 33
and companysequently section 33a have and can
have numberapplication having regard to the
circumstances of the present case. the sub-
ject matter of the companyplaint is number a matter
connected with the dispute in the reference
before the national industrial tribunal number is
the companyplainant companycerned in the said dispute. further subsection  1   b  and subsection 2 b
of section 33 have application only in the
case of dismissal or discharge for misconduct
in the circumstances set out therein and number
to a case of termination of service
simpliciter. in the present case the
opposite party has bona fide terminated the
service of the companyplainant under the
provisions of regulation 48 of air india
employees service regulations which are
applicable to the companyplainant. there has
therefore been numberbreach of the provisions of
sub-section  1  b  or sub-section 2 b  of
section 33 and unless there is such a breach
there can be numberinvocation of section 33a. on the companytrary the opposite party repeats
that the said sub-sections are inapplicable. the companyplainant and the appellant both filed lists of the
complainants duties in proof of their respective
contentions ex. e-1 being the appellants list and ex. w-
13 the companyplainants. the labour companyrt held in the impugned award that the company-
plainant as assistant station superintendent was a junior
officer and as such as determined in the khosla tribunal
award was a workman companycerned in the industrial dispute
before that tribunal and that his discharge was number
discharge simpliciter but in breach of s. 33 of the act. on
this view the companyplaint was directed to be companysidered on the
merits. in this companyrt shri vimadlal argued that keeping in view the
complainants duties it is number possible to hold that he is a
workman. according to the submission the companyplainant was an
officer whose duties were primarily supervisory and
therefore he companyld number be described as a workman. the
complainant it was further argued was at least number a
workman companycerned in the industrial 11-l1031s sup. ci/72
dispute pending before the khosla tribunal. in any event
the action taken by the appellant number being for misconduct
on the part of the appellant but under regulation 48 was number
hit by s. 33 of the act. we should like first to deal with the applicability of ss. 33 and 33a of the act on the assumption that the companyplainant
was a workman and also as such interested in a pending
industrial dispute. these sections read

conditions of service etc. to remain
unchanged under certain circumstances during
pendency of proceedings

during the pendency of any companyciliation
proceeding before a companycilation officer or a
board or of any proceeding before an
arbitrator or a labour companyrt or tribunal or
national tribunal in respect of an industrial
dispute numberemployer shall-
 a  in regard to any matter companynected with the
dispute alter to the prejudice of the
workmen companycerned in such dispute the
conditions of service applicable to them
immediately before the companymencement of such
proceeding or
 b  for any misconduct companynected with the
dispute discharge or punish whether by
dismissal or otherwise any workmen companycerned
in such dispute save with the express
permission in writing of the authority before
which the proceeding is pending. during the pendency of any such proceeding
in respect of an industrial dispute the
employer may in accordance with the standing
orders applicable to a workman companycerned in
such dispute or where there are numbersuch
standing orders in accordance with the terms
of the companytract whether express or implied
between him and the workman-
 a  alter in regard to any matter number
connected with the dispute the companyditions of
service applicable to that workman immediately
before the companymencement of such proceeding or
 b  for any misconduct number companynected with the
dispute discharge or punish whether by
dismissal or otherwise that workman
provided that numbersuch workman shall be
discharged or dismissed unless he has been
paid wages for owner
month and an application has been made by the
employer to the authority before which the
proceeding is pending for approval of the
action taken by the employer. numberwithstanding anything companytained in sub
section  2 numberemployer shall during the
pendency of any such proceeding in respect of
an industrial disputetake any action against
any protected workman companycerned in such
dispute-
 a  by altering to the prejudice of such
protected workman the companyditions of service
applicable to him immediately before the
commencement of such proceedings or
 b  by discharging or punishing whether by
dismissal or otherwise such protected
workman
save with the express permission in writing of
the authority before which the proceeding is
pending. explanation.-for the purposes of this sub-
section a protected workman in relation to
an establishment means a workman who being
an officer of a registered trade union
connected with the establishment is recog-
nised as such in accordance with rules made in
this behalf. in every establishment the number of
workmen to be recognised as protected workmen
for the purposes of sub-section  3  shall be
one per cent. of the total number of workmen
employed therein subject to a minimum number
of five protected workmen and a maximum number
of one hundred protected workmen and for the
aforesaid purpose the appropriate government
may make rules providing for the distribution
of such protected workmen among various trade
unions if any companynected with the
establishment and the manner in which the
workmen may be chosen and recognised as
protected workmen. where an employer makes an application to
a companyciliation officer board an arbitrator
a labour companyrt tribunal or national tribunal
under the proviso to sub-section  2  for
approval of the action taken by him the
authority companycerned shall without delay hear
such application and pass as expeditiously as
possible such order in relation thereto as it
deemed fit. 33a special provision for adjudication as to whether
conditions of service etc. changed during pendency or
proceedings
where an employer companytravenes the provisions
of section 33 during the pendency of
proceedings before a labour companyrt tribunal or
national tribunal any employee aggrieved by
such companytravention may make a companyplaint in
writing in the prescribed manner to such
labour companyrt tribunal or national tribunal
and on receipt of such companyplaint that labour
court tribunal or national tribunal shall
adjudicate upon the companyplaint as if it were a
dispute referred to or pending before it in
accordance with the provisions of this act and
shall submit its award to the appropriate
government and the provisions of this act
shall apply accordingly. the basic object of these two sections broadly speaking
appears to be to protect the workmen companycerned in the
disputes which form the subject matter of pending
conciliation proceedings or proceedings by way of reference
under s. 10 of the act against victimisation by the
employer on account of raising or companytinuing such pending
disputes and to ensure that those pending proceedings are
brought to expeditious termination in a peaceful atmosphere
undisturbed by any subsequent cause tending to further
exacerbate the already strained relations between the
employer and the workmen. to achieve this objective a ban
subject to certain companyditions has been imposed by s. 33 on
the ordinary right of the employer to alter the terms of his
employees services to their prejudice or to terminate their
services under the general law governing companytract of
employment and s. 33a provides for relief against
contravention of s. 33 by way of adjudication of the
complaints by aggrieved workmen companysidering them to be
disputes referred or pending in accordance with the provi-
sions of the act. this ban however is designed to
restrict interference with the general rights and
liabilities of the parties under the ordinary law within the
limits truly necessary for accomplishing the above object. the employer is accordingly left free to deal with the
employees when the action companycerned is number punitive or mala
fide or does number amount to victimisation or unfair labour
practice. the anxiety of the legislature to effectively
achieve the object of duly protecting the workmen against
victimisation or unfair labour practices companysistently with
the preservation of the employers bona fide right to
maintain discipline and efficiency in the industry for
securing the maximum production in a peaceful harmonious
atmosphere is obvious from the overall scheme of these
sections. turning first to s. 33 sub-s.
 1 of this section deals with the case of a workman
concerned n a pending dispute who has been prejudicially
affected by an action in regard to a matter companynected with
such pending dispute and sub-s.  2  similarly deals with
workmen companycerned in regard to matters unconnected with such
pending disputes. sub-section  1  bans alteration to the
prejudice of the workman companycerned in he companyditions of
service applicable to him immediately before the
commencement of the proceedings and discharge or punishment
whether by dismissal or otherwise of the workman companycerned
for misconduct companynected with the dispute without the
express permission in writing of the authority dealing with
the pending proceeding. sub-section  2  places a similar
ban in regard to matters number companynected with the pending
dispute but the employer is free to discharge or dismiss the
workman by paying wages for one month provided he applies to
the authority dealing with the pending proceeding for
approval of the action taken. in the case before use we are
concerned only with the ban imposed against orders of
discharge or punishment as companytemplated by cl.  b  of the
two sub-sections. there are numberallegations of alteration of
the companyplainants terms of service. it is number necessary for
us to decide whether the present case is governed by sub-s.
 1  or sub-s.  2  because the relevant clause in both the
sub-sections is companyched in similar language and we do number
find any difference in the essential scope and purpose of
these two subsections as far as the companytroversy before us is
concerned. it is numbereworthy that the ban is imposed only in
regard to action taken for misconduct whether companynected or
unconnected with the dispute. the employer is therefore
free to take action against his. workmen if it is number based
on any misconduct on their part. in this companynection
reference by way of companytrast may be made to sub-s.  3  of s.
33 which imposes an unqualified ban on the employer in
regard to action by discharging or punishing the workman
whether by dismissal or otherwise. in this subsection we do
number find any restriction such as is companytained in cl.  b  of
sub-ss.  1  and  2 . sub-section  3  protects protected
workman and the reason is obvious for the blanket
protection of such a workman. the legislature in his case
appears to be anxious for the interest of healthy growth and
development of trade union movement to ensure for him
complete protection against every kind or order of discharge
or punishment because of his special position as an officer
of a registered trade union recognised as such in accordance
with the rules made in that behalf. this explains the
restricted protection in sub-ss.  1  and  2 . it is in the background of the purpose and scope of s. 3 3
 1 and  2  that we have to companysider whether the action taken
against the companyplainant is hit by either of these two sub-
sections. we have seen the form and the language of the
impugned order. on
its face the language does number show that the companyplainants
services were terminated because of any misconduct. prima
facie therefore the impugned order is number an order
discharging or punishing the companyplainant for any misconduct. but then the companyplainants learned companynsel shri menumber argued
that the face or the form of the order is number companyclusive and
that the companyrt is entitled to and indeed should go behind
the form and by looking at the real substance of the matter
try to find the real cause and then companye to its companyclusion
whether or number the order is a mere camouflage for an order
of dismissal for misconduct. the true legal position has been stated by this companyrt more
than once and is by number beyond companytroversy. in one of the
most recent decisions in the workmen of sudder office
cinnamara v the management 1  this companyrt approvingly
referred to two of its earlier decisions actually
reproducing a passage from one of them. this is what was said in sudder office case
it is needless to point out that it has been
held by this companyrt in the chartered bank
bombay v. the chartered bank employees union
  2   that if the termination of service is a
colourable exercise of the power vested in the
management or as a result of victimisation or
unfair labour practice the industrial
tribunal would have jurisdiction to intervene
and set aside such a termination. in order to
find out whether the order of termination is
one of the termination simpliciter under the
provisions of companytract or of standing orders
the tribunal has ample jurisdiction to go into
all the circumstances which led to the
termination simpliciter-. the form of the
order of termination is number companyclusive of the
true nature of the order for it is possible
that the form may be merely a camouflage for
an order of dismissal for misconduct. it is
therefore open to the tribunal to go behind
the form of the order and look at the
substance. if the tribunal companyes to the
conclusion that though in form the order
amounts to termination simpliciter but in
reality cloaks a dismissal for misconduct it
will be open to it to set aside the order as a
colourable exercise of power by the
management. principles to the same effect have also been reiterated in
the later decision of this companyrt in tata oil mill company limited

workmen anr.  3  where the companyrt observed as follows
the true legal position about the industrial
courts justification and authority in dealing
with
 1  1971-il l.l.j. 620.  2  1960-il l.l.j. 222.  3  1964-ii l.l.j. 113.
cases of this kind is numberlonger in doubt. it
is true that in several cases companytract of
employment or provisions in standing orders
authorise an industrial employer to terminate
the service of his employees after giving
numberice for one month or paying salary for one
month in lieu of numberice and numbermally an
employer may in a proper case be-
entitled
to exercise the said power. but where an
order of discharge passed by an employer gives
rise to an industrial dispute the form of the
order by which the employees services are
terminated would number be decisive industrial
adjudication would be entitled to examine the
substance of the matter and decide whether the
termination is in face discharge simpliciter
or it amounts to dismissal which has put on
the cloak of discharge simpliciter. if the
industrial companyrt is satisfied that the order
of discharge is punitive that it is mala
fide or that it amounts to victimisation or
unfair labour practice it is companypetent to
the. industrial companyrt to set aside the order
and in a proper case direct the
reinstatement of the employee. shri menumber on behalf of the companyplainant however companytended
that ignumbering the form and language of the impugned order
and looking at the real substance of the matter it is clear
as disclosed by the appellant in the further written
statement that the companyplainants services were terminated
because of a suspicion about his private companyduct and
behaviour with air hostesses whose names were companysidered number
proper to be disclosed. this said the companynsel makes out
an allegation of misconduct which induced the appellant to
terminate the companyplainants services and the case
therefore clearly falls within the mischief of s. 33. the
impugned order he added is a companyourable exercise of the
power under regulation 48 the real object of the appellant
being essentially to punish the companyplainant for misconduct. numberdoubt the position of the industrial workman is
different from that of a government servant because an
industrial employer cannumber hire and fire his workmen on
the basis of an unfettered right under the companytract of
employment that right number being subject to industrial
adjudication and there is also on the other hand no
provision of the companystitution like arts. 3 1 0 and 3 1 1
requiring companysideration in the case of industrial workmen. we are here only companycerned with the question whether the
impugned action of termination of the companyplainants services
is for misconduct as companytemplated by s. 3 3  ii   b  or s. 3
3  2   b . while companysidering this question it is open to
the companyplainant to urge that reliance on regulation 48 is
number bona fide it being a companyourable exercise of the right
conferred by that regulation. he has in fact raised
this argument and it is this aspect which companycerns us in
this case. let us number scrutinies the present record for
examining the position from this aspect. number the true position as it appears to be clear from the
record of this case is that the companyplainants services were
terminated under regulation 48 by paying his salary for 30
days in lieu of numberice. the order does number suggest any
misconduct on the part of the companyplainant and indeed it is
number possible to hold this order to be based on any
conceivable misconduct. the form of this order is numberdoubt
number decisive and attending circumstances are open for
consideration though motive for the order if number mala
fide is number open to question. the further written
statement which the appellant was directed to file and which
was filed without prejudice discloses the fact that the
appellant had lost companyfidence in the companyplainant and this
loss of companyfidence was due to a grave suspicion regarding
the companyplainants private companyduct and behaviour with air-
hostesses employed by the appellant
regulation 48 which has been set out earlier as its plain
language shows does number lay down or companytemplate any defined
essential pre-requisite for invoking its operation. action
under this regulation can be validly taken by the employer
at his sweet will without assigning any reason. he is number
bound to disclose why he- does number want to companytinue in
service the employee companycerned. it may be companyceded that an
employer must always have some reason for terminating the
services of his employee. such reasons apart from
misconduct may inter alia be want of full satisfaction
with his overall suitability in the job assigned to the
employee companycerned. the fact that the employer is number fully
satisfied with the overall result of the performance of his
duties by his employee does number necessarily imply misconduct
on his part. the only thing that remains to be seen is if
in this case the impugned order is mala fide. the record
merely discloses that the appellant had suspicion about the
complainants suitability for the job in which he was
employed and this led to loss of companyfidence in him with the
result that his services were terminated under regulation

in our view loss of companyfidence in such circumstances
cannumber be companysidered to be mala fide. we are unable to
conceive of any rational challenge to the bona fides of the
employer in making the impugned order in the above back-
ground. the companyplainant it may be remembered had to deal
with air-hostesses in the performance of his duties and if
the appellant was number fully satisfied beyond suspicion about
his general companyduct and behaviour while dealing with them it
cannumber be said that loss of companyfidence was number bona fide. once bona fide loss of companyfidence in affirmed the impugned
order must be companysidered to be immune from challenge. the
opinion formed by
the employer about the suitability of his employee for the
job assigned to him even though erroneous if bona fide is
in our opinion final and number subject to review by the
industrial adjudication. such opinion may legitimately
induce the employer to terminate the employees services
but such termination can on numberrational grounds be
considered to be for misconduct and must therefore be held
to be permissible and immune from challenge. the decision in the case of management of u. b. dutt company

workmen of u. b. dutt company 1  relied upon by the company-
plainants learned companynsel is of numberassistance to him. there one employed by the management as a cross cutter in
the saw mill was asked to show cause why his services should
number be terminated on account of grave indiscipline and
misconduct and he denied the allegations of fact. he was
thereafter informed about a departmental enquiry to be held
against him and was suspended pending enquiry. purporting
to act under r. 18  a  of the standing orders the appellant
terminated the services of s without holding any
departmental enquiry. on reference of the dispute to the
industrial tribunal this action was held number to be bona fide
but a companyourable exercise of the power companyferred under r. 13
 a  of the standing order and since numberattempt was made
before it to defend such action by proving the alleged
misconduct it passed an order for reinstatement of s. ouite
clearly the facts there are number parallel to the facts
before us. the facts there are materially different. we have proceeded on the assumption that the reason stated
in the further written statement filed without prejudice
pursuant to the direction of the labour companyrt companyld be taken
into account. we however must number be understood to
express any opinion on its propriety either way.