JUDGMENT Dunedin, J.

1. In these consolidated appeals it will be convenient to consider the first case by itself. The appellants as sellers entered into two contracts with the respondents as buyers of certain bales of cotton. The contracts were made subject to the rules and regulations of <ORG>. Rule 12 of the said Association provides:

All questions or disputes as to quality between buyer and seller shall be referred to the arbitration of two disinterested persona, one to be chosen by each disputant, such arbitrators having the power to call in a third arbitrator. The award made by such arbitrators or any two of them shall be final and binding subject only to the right of appeal to <ORG> All arbitrations held under this Rule must be held in accordance with Rule 5, and only shareholders and/or Directors shall be eligible to act on arbitrations held in the rooms of the <ORG>. Associate members, however, shall be eligible to act as arbitrators when the arbitration is held in the seller's jetha and/or godown as provided under Rule 5.

2. Rule 13 provides:

All questions in dispute (other than that of quality) arising out of, or in relation to, contracts made subject to the Rules and Regulations of <ORG>, provided one of the parties to the contract is a member or associate member of the <ORG>, shall be referred to the arbitration of two disinterested persons being shareholders or directors of the <ORG>, one to be chosen by each disputant; such arbitrators having the power to call in a third arbitrator who must also be a shareholder or director of the <ORG>.

The award made by such arbitrators or any two of them shall be final and binding on both parties, subject only to the right of appeal to the <ORG> within 15 days of the date of the arbitrators' award on payment of Rs. 100.

3. The cotton was delivered but objected to by the respondents as being not up to contract. Upon this an arbitration was entered into between the parties, and the arbitrators under Rule 12 made an award as to quality. Thereupon, the respondents rejected the cotton. The appellants retorted by claiming damages. This dispute was referred to arbitrators under Rule 13. They issued their award as follows:

To all to whom these presents shall come, we, <NAME> of <ORG>, and <NAME>, also of Bombay, <ORG>, send greeting. Whereas by a contract dated 17th day of August, 1918, Messrs. <NAME> and <ORG> bad agreed to sell to the Jivraj Balloo Spinning and Weaving <ORG>, Limited, 100 bales of Mundra M.G. Fully Good Staple cotton on the terms and conditions mentioned in the contract. And whereas by another contract dated 4th day of September, 1918, the said Messrs <NAME> and <ORG> had also agreed to sell to the said Jivraj Balloo Spinning and Weaving <ORG>, Limited, 100 bales of New M.G. Mundra Cotton Fully Good Staple on the terms and conditions therein contained. And whereas both the said contracts were made subject to the rules and regulations of <ORG>. And whereas the goods tendered under the said contracts by the said Messrs, <NAME> and <ORG> were rejected by the Jivraj Balloo Spinning and Weaving <ORG>, Limited, on the grounds contained in their letters dated 25th November, 1918, and 11th November, 1918, respectively. And whereas the said Messrs. <NAME> and <ORG> claimed from the said Jivraj Balloo Spinning and Weaving <ORG>, Limited, the sum of Rs. 25,003 (rupees twenty-five thousand) in respect of the aforesaid contracts. And whereas the said Jivraj Balloo Spinning and Weaving <ORG>, Limited, denied liability in respect of the said sum or any part thereof. And whereas the said disputes were referred to the arbitration of us, <NAME> and <NAME>, who were appointed Arbitrators by the Deputy Chairman of <ORG>. And whereas on the 12th day of December the time for making our Award was extended by the Deputy Chairman to the 27th day of December, 1918. Now know ye that we, the said <NAME> and <NAME>, having taken upon ourself the burden of the said reference, and having done all acts necessary to enable us to make a valid Award, hereby make our Award as follows, that is to say:-We award and direct that the said Jivraj Balloo Spinning and Weaving <ORG>, Limited, do pay to the said Messrs. <NAME> and <ORG> the sum of 25,000 (rupees twenty-five thousand), and we do further award and direct) that the said Jivraj Balloo Spinning and Weaving <ORG>, Limited, do pay the coats of this our Award, which we assess at the sum of Rs. 55 (rupees fifty-five).

In witness whereof we have hereunto set our respective hands this 23rd day of December, 1918.

Signed and Published this 23rd (Signed) day of December, 1918, by us, Pur- PURSHOTAMDAS THAKOREDAS. <NAME> and <NAME> <NAME> in the presence of (Signed) J.A. GRANT.

4. An appeal was made to <ORG>, who confirmed the award. The respondents then presented a petition to the Court asking that the award should be set aside. They alleged two grounds (1) that there was no question referable to the arbitrators under Rule 13(2) that there was an error of law on the face of the award, The case depended before <NAME>, who dismissed the petition. Appeal was taken to <ORG>, and they reversed the judgment holding that there was an error in law on the face of the award. The way that the learned Judges arrived at that conclusion was this : They said that the recital that the respondents had rejected the cotton on the grounds mentioned in the letters of November, 11 and 25, 1918, respectively, allowed them to look at the letters. The letter of November 11 is as follows:

To Messrs, <NAME> <NAME> and Company.

Dear Sirs, Re : D/Order No. 27 dated 6.11.18 for 100 bales N. M.G. Mundra.

Please note that at the survey held this day on the above lot tendered by you against contract No. 56, dated 4.19.8 as the Arbitrators have in their award allowed Rs. 10 off, we hereby reject the said lot and refuse to take delivery thereof.

<ORG>

5. The letter of November 25, is in identical terms referring to the other contract, The learned Judges then held that if Clause 52 of the Regulations is looked at-it being the clause which deals with what is to happen when arbitrators, as to quality, make certain findingsit becomes apparent that the arbitrators here could only have arrived at their judgment if they entirely misinterpreted Article 52 ,, They based their opinion, upon the case of <NAME> v. <NAME>  2 K.B. 184.

6. The law on the subject has never been more clearly stated than by Williams J. in the case of Hodgkinson v. <NAME>: [1857] 3 C.B.N.S. 189.

The law has for many years been settled, and remains so at this day, that, where a clause or matters in difference are referred to an arbitrator, whether a lawyer or a layman, he is constituted the sole and final judge of all questions both of law and of fact.... The only exceptions to that rule, are, cases where the award is the result of corruption or fraud, and one other, which though it is to be regretted, is now, 1 think, firmly established, viz., where the question of law necessarily aries on the face of the award, or upon some paper accompanying and forming part of the award. Though the propriety of this latter may very well be doubted, I think it may be considered as established.

7. This view has been adhered to in many subsequent cases, and in particular in <ORG> in <ORG> Limited v. <ORG> Limited [1912] A.C. 673.

8. The question to be decided is : Does the error in law appear on the face of the award? In the British <ORG> case it clearly did. The arbitrator had stated a special case and got an opinion of <ORG>; in making his award he stated that opinion and founded his award upon it. The opinion as given was held to be erroneous, and so there was an error in law on the face of the award. In <NAME> v. <NAME> the state of affairs was different. The question was as to liability and interest on a policy of insurance effected by sellers for and on account of buyers, and the arbitrator framed his award thus:

I decide that as the parties to the contract dated November 3, 1903, were by the terms thereof principals thereto, their interest and liability in insurance is defined to be the value of the invoice plus 5 per rent., and that the buyers are therefore entitled to and only to the said amount, the balance one way or the other being due from or to the sellers.

9. <ORG> held that this entitled them to look at the contract and to come to the conclusion that the decision was erroneous in law. The case of <NAME> v. <ORG> is not binding on their Lordships, and it was contended that it was wrongly decided, but in their Lordships' opinion it is not necessary to consider that point, for the present case differs from <NAME>'s case in an essential particular. In that case the legal proposition was stated in terms on which the award proceeded. In the present case, no legal proposition at all is stated as a ground of award. The reference to the letters is only in the narrative, and even when the letters are looked at they only contain the view of one party. To make this case equiparate with that of <NAME> v. <ORG> the award would have to run somewhat thus:-"In respect of the ground of rejection contained in the letters of November 11 and 25, and in respect of Clause 52 of the Articles, I decide that, etc."

10. Now the regret expressed by <ORG> in <NAME> v. <NAME> has been repeated by more than one learned Judge, and it is certainly not to be desired that the exception should be in any way extended. An error in law on the face of the award means, in their Lordships' view, that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous. It does not mean that if in a narrative a reference is made to a contention of one party that opens the door to seeing first what that contention is, and then going to the contract on which the parties' rights depend to see if that contention is sound. Here it is impossible to say, from what is shown on the face of the award, what mistake the arbitrators made. The only way that the learned Judges have arrived at finding what the mistake was is by saying : Inasmuch as the arbitrators awarded so-and-so, and inasmuch as the letter shows that the buyer rejected the cotton, the arbitrators can only have arrived at that result by totally misinterpreting Clause 52." But they were entitled to give their own interpretation to Clause 52 or any other article, and the award will stand unless, on the face of it, they have tied themselves down to some special legal proposition which then, when examined, appears to be unsound. Upon this point, therefore, their Lordships think that the judgment of <ORG> was right and the conclusion of the learned Judges of <ORG> erroneous.

11. The counsel for the respondents then argued the other point, which the learned Judges of <ORG> found it unnecessary to decide, and which the trial Judge decided against them. He said that upon a proper construction of the contract the moment his client rejected the cotton in virtue of the decision by the arbitrators as to quality, he was entitled to do so, and the contract was repudiated or came to an end; that then the arbitration clause could no longer be appealed to and he said that inasmuch as this was a plea to jurisdiction the Court ought to decide it.

12. Their Lordships think that this argument is based upon a confusion of thought. The question of whether an arbitrator acts within his jurisdiction is, of course, for the <ORG> to decide, but whether the arbitrator acts within his jurisdiction or not depends solely upon the clause of reference. It is, therefore, for the <ORG> to decide in this case whether the dispute which 'has arisen is a dispute covered by Clause IS of the Articles. It clearly is so, because it is undoubtedly a dispute arising out of or in relation to a contract made subject to the rules and regulations of <ORG>. Now that clause refers to the arbitrator the whole question whether it depends on law or on fact, with the exception only of dispute as to quality. It is, therefore, for the arbitrator and not for the <ORG> to decide what is the effect of the rejection based on an award as to quality. In truth this point is decided in terms by the recent case of <NAME> v. <NAME> [1922] S.C.H.L. 117. It was a Scotch case, but in no way depended upon any peculiarity of the law of

13. The decision of the first appeal in this sense disposes of the second appeal without further argument, as it is obvious that in that case even the reference in the narrative to the grounds of defence in the letters is absent, and there is nothing but the bare statement that a certain sum was awarded. It follows that in the first appeal the appeal must be allowed and the judgment of the trial Judge restored; the appellants must have their costs here and in the <ORG> below. The second appeal must be dismissed and the respondents will have their costs.

14. Their Lordships will humbly advise His Majesty accordingly.


JUDGMENT <NAME>, C.J.

1. On 27-10-1944, the appellant, <NAME>, was appointed a District Fishery Officer along with several other persons. He was put on probation for a period of two years and the order of appointment specifically provided that he would be confirmed in service "on the satisfactory completion of the period of probation and the passing of a departmental examination, which may be prescribed during the period." No departmental examination was held during the probationary period, but the appellant was allowed to continue in service. An examination was held in 1951 and the appellant did appear in it, but was unable to pass. Up to the time when the proceedings out of which this appeal has arisen were commenced, he had not passed the departmental examination. We are informed that he passed it while he was under suspension.

2. On 22-9-1951, the appellant was placed under suspension by an order passed on that date. Along with the order, a charge-sheet containing as many as five charges was served on him. Those charges related principally to alleged irregularities in monetary dealings and also failure to maintain proper accounts. The charge-sheet, after reciting the charges, directed the appellant to show cause within a fortnight why disciplinary action under Rule 7 of the Bengal Subordinate Services (Discipline and Appeal) Rules. 1936 should not be taken against him. Both the order of suspension and the charge-sheet were signed by one Dr. <NAME> who was the Director of <ORG> at the time.

3. The appellant showed cause by means of a lengthy document submitted on 14-11-1931. On the 7th of December following, he received a telegram from the Director of <ORG>, directing him to see the Director on the 10th of December next in connection with the explanation furnished. <NAME> did see the Director on that date and something like an enquiry was held at which another Officer as also a stenographer was present. What happened exactly on the 10th of December is a matter of dispute between the parties, but this much is clear that the enquiry was not concluded on that date. It appears from a letter of the Director that he thought that the appellant was obstinately refusing to furnish further explanation as to certain points raised by him in his memorandum and that he was insisting on the points being formally reduced to writing and formally served on him before he would undertake to answer them. The appellant's version is different. Be that as it may, the Director finally asked the appellant to appear before him once again on the 13th of December. The appellant did not appear on that date, but on the previous clay left a letter addressed to the Director at his Office by which he explained his own point of view. As the appellant failed to appear on the 13th of December, the Director treated his examination as closed and made a report which was adverse to the appellant. The report was duly considered by <ORG> and they came provisionally to the conclusion that the appellant "should be punished with discharge from <ORG> service under Rule 49 (vi) of the Civil" Service (C.G.A.) Rules." By a notice dated 14-5-1952, an Assistant Secretary to the State <ORG> called upon the appellant to submit within fifteen days any representation that he might desire to make as to why he should not be punished in the aforesaid manner.

4. The appellant did make a representation, but it found no favour with the authorities. They consulted <ORG> and on the recommendation received from that body, they finally decided that the appellant should be discharged from <ORG> service. Thereafter, by an order dated 28-3-1953, he was discharged.

5. The appellant then moved this Court under Article 226 of the Constitution against the Director of <ORG>, the Secretary in the Department of Forests and <ORG> and the State of West Bengal for a writ of mandamus, commanding them to rescind the orders passed against him or to forbear from giving effect to them. The usual additional prayers for writs of certiorari and prohibition were also made. A Rule was issued on the application, but at the final hearing it was discharged by <NAME>, J., by an order dated 29-5-1956. Aggrieved by that order, the appellant preferred the present appeal.

6. A great deal of controversy appears to have taken place before the learned Judge as to whether the appellant had continued to be a mere probationer in <ORG> service or had become a confirmed member by reason of his having been retained in employment after the expiry of the probationary period. The learned Judge held that the appellant had continued to be a probationer and I find no good reason to dissent from that view. It is quite true that the probationary period was for two years only and that even after the expiry of that period, the appellant had not been discharged but kept on in service. At the same time, he had not been confirmed. It has also to be noticed that by the very terms of his appointment, he was to be confirmed only if he satisfied both of two conditions, one of which was satisfactory work during the probationary period and the other of which was the passing of a departmental examination. Admittedly, he did not pass a departmental examination during the probationary period and obviously his work was not considered satisfactory. It may have been wrong for <ORG> not to hold a departmental examination within the probationary period and the appellant, if he was so minded, might have taken appropriate steps at the appropriate time for forcing <ORG> to hold a timely examination. This point, however, which is somewhat in the appellant's favour, loses a great deal of its force, if one remembers that when the examination was ultimately held in 1951, the appellant failed to pass it. Be that as it may, whatever might have been the reason for <ORG> not confirming him, the fact remains that he was not confirmed and if he was not confirmed, he could not claim any status other than that of a probationer.

7. The learned Judge found the status of the appellant to be a complete answer to the grievance made by him. The grievance was that he was entitled to the benefit of Article 311(2) of the Constitution of India and, therefore, he was entitled to a proper enquiry into the charges against him and proper opportunities to show cause both against the charges and, if the charges were found proved, against the action proposed to her taken against him. <NAME>, J., disposed of the appellant's complaint by holding that since his status in <ORG> service was no more than that of a probationer and since under the very terms of his employment, he would be liable to be discharged, if his work was not found satisfactory, it could not be said that he had been penalised, if his service had been terminated in the view that he had failed to render satisfactory service. What had happened, according to the learned Judge, was that the conditions under which the appellant had entered employment in <ORG> had been worked out in a normal manner and, consequently, no question of any penalty arose at all.

8. The learned Judge also pointed out that the appellant had been proceeded against under Rule 7 of the Bengal Subordinate Services (Discipline and Appeal) Rules, 1936 and that, according to the explanation appended to that Rule, the discharge of a person appointed on probation during the period of probation would not amount to removal or dismissal within the meaning of the Rule. On the basis of the explanation the learned Judge held that since the appellant was only a probationer and since he had been discharged during the period of his probation, he had neither been dismissed nor removed and, therefore, he could not complain that the protection of Article 311(2) had not been made available to him.

9. A point had been taken before the learned Judge that the enquiry which had been held was not a proper enquiry at all. It was said that the Director of <ORG>, having himself framed the charges and having been virtually in the position of a complainant, should not have constituted himself the Enquiring Officer as well. Other complaints were also made as to irregularities in the course of the enquiry. The learned Judge found it unnecessary to decide whether what had taken place could be said to have been an enquiry as contemplated by Article 311(2) or the relevant Service Rules, because, in his view, the appellant having been a mere probationer, was not entitled to an enquiry of that kind at all.

10. On the broad features of the case, the learned Judge held that it could not fairly be said that the appellant had had no opportunity for establishing his innocence. He pointed out that the authorities had proceeded on documents which had been fully dealt with by the appellant in his representations and that he had been given opportunity to show cause against both the charges and the penalty proposed to be imposed on him. Accordingly, the learned Judge concluded that even if Rule 55B of the Fundamental Rules applied, it could not be said that the benefit of that Rule had been withheld from him. I should explain here that Rule 55B provides that where it is proposed to terminate the employment of a probationer, whether during or at the end of the period of probation, for any specific fault on account of his unsuitability for the service, he shall be apprised of the grounds of such proposal and given an opportunity to show cause against it. There is no such Rule amongst the Bengal Subordinate Services (Discipline and Appeal) Rules, 1936, and that explains why the learned Judge said "even if Rule 55B applies.'

11. It appears to me that the view taken by the learned Judge of the proceedings had against the appellant is not warranted by the facts. It is quite true that his status was that of a probationer, as the learned Judge has held and as I think he rightly held. But the mere fact that the appellant was a probationer could not by itself exclude him from the benefit of the Constitutional protection. If the service of a probationer is terminated merely on the ground of his work being unsatisfactory and terminated in accordance with the terms of the employment, no question of any penalty being imposed, it is true, arises. But even a probationer can be proceeded against for misconduct and proceedings with a view to imposing a penalty can be taken against a probationer as well. If, on the facts of the case, it appears that what the authorities did was not merely to terminate the employment of the probationer, because his work had not been found up to the required standard, but they had proceeded on some ground extraneous to the terms of service and had intended to punish the probationer on that ground, Article 311(2) would obviously be attracted. As I have explained elsewhere, a probationer will normally servo up to the end of the probationary period and then be either confirmed, if his work has been found satisfactory, or discharged, if the reverse has been the case; but if before me probationary period is over or if although the period is over, the <ORG> servant concerned is still holding the status of a probationer, some misconduct if alleged against him and proceedings are started with a view to punishing him for such misconduct, it can by no means be said that no more is being done than the terms of the employment are being worked out. To such a case, as I have already said, the provisions of Article 311(2) will apply.

12. Before dealing with the facts of the case may point out that the argument drawn by the learned Judge from Rule 7 of the Bengal Subordinate Services (Discipline and Appeal) Rules, 1936, does not, with respect, appear to me to be correct. Under the Explanation to Rule 7, discharge of a probationer during the period of probation does not I amount to removal or dismissal from service. The I meaning of that provision is that if a person, appointed on probation, is discharged during the period of probation, such discharge will not be a penalty of removal within the meaning of clause (vi) of Rule 7, nor a penalty of dismissal within the meaning of clause (vii) of the same Rule. In such a case, therefore, there would be no question of proceeding under Rule 7 at all, because Rule 7 only provides for imposition of penalties by way, inter alia, of removal from service or dismissal. The fact, therefore, that the authorities in the present case proceeded under Rule 7 of the Bengal Subordinate Services (Discipline and Appeal) Rules, 1936, proves rather than disproves that they were proceeding against the appellant with a view to imposing a penalty. The explanation to Rule 7 is an exception and if a case comes under the exception, Rule 7 will not apply at all and no proceedings under that Rule can be taken.

13. Turning now to the facts of the case, it appears from the charge-sheet that the charges all related to specific instances of misconduct on the part of the appellant. The proceedings begin with an order of suspension which, by itself, indicates that it was not as a case of a probationer that the appellant's case was being considered. If it was a question of merely examining the record of the appellant with a view to taking a decision as to whether he should or should not be confirmed, it could hardly be appropriate to serve him with a charge-sheet. Not merely was a charge-sheet served, but, as I have already pointed out, the appellant was asked to show cause why disciplinary action under Rule 7 of the Bengal Subordinate Services (Discipline and Appeal) Rules should not be taken against him. The structure of the proceedings, again, was the structure of an enquiry such as prescribed by Rule 55 of the Civil Services (Classification, Control and Appeal) Rules. A charge-sheet was served, cause was directed to be shown against the charges, then an enquiry of a kind was held, at the end of the enquiry a particular penalty was tentatively decided on, then the appellant was asked to show cause why that penalty should not be imposed and ultimately it was imposed. The succession of these steps, coupled with the fact that the authorities were on their own admission proceeding under Rule 7 of the Bengal Subordinate Services (Discipline and Appeal) Rules, shows conclusively that they were holding an enquiry with a view to imposing a penalty, if the charges were proved. The matter is clinched by the letter of 14-5-1952, which an Assistant Secretary to <ORG> addressed to the appellant. There it was stated that Government bad come to the conclusion provisionally that the appellant should be "punished" with discharge from Government service and he was asked to show cause why he should not be "punished" in the manner stated. After all these, it cannot possibly be contended that it was not punishment which the authorities had in view, but merely the termination of the appellant's service in accordance with the terms of his employment.

14. Mr. <NAME>, who appeals for the respondents, was asked by me whether he could, in view of these facts, contend that the appellant had been treated merely as a probationer and whether it was not a fact that the authorities had proceeded against him for alleged misconduct with a view to punishing him therefor. He would not directly concede that the true view of the facts was the latter, but was frank enough to say that it looked as if it was so. In my view, it does not merely look that it was so, but it was in fact so.

15. It must, therefore, be held that the appellant was entitled to the protection of Article 311(2) of the Constitution and that, therefore, was entitled to a proper opportunity at a proper enquiry to show cause against the charges framed against him. The learned Judge has undoubtedly held that even if the appellant was entitled to the Constitutional protection, he had in substance got it, because the authorities had proceeded on nothing which he had not dealt with in his representations and because two opportunities, one to show cause against the charges and another to show cause against the proposed punishment, had in fact been given. I think that this is not a correct view of the facts. I pass over the appellant's objection that the so-called Enquiring Officer was the complainant himself, but an enquiry had to be directed to be held and the appellant had to be given proper notice thereof. All that happened after he had submitted the explanation was that he was asked by a telegram to appear before the Director of Fisheries in connection with a representation made by him. What happened subsequently I have already stated. The learned Judge has said that the appellant could not complain that he had not been given an opportunity to call witnesses, because he had never asked for such an opportunity. It appears to me that since no <ORG> or Enquiring Officer had ever been appointed and the appellant had merely been asked to see the Director of Fisheries which he did at least once, it cannot fairly be said that an occasion had arisen when he could ask for an opportunity to call witnesses. There was nothing to indicate to him that what was being held by the Director of Fisheries was anything but an interview between a superior Officer and a subordinate Officer and that it was a formal enquiry at which he would be entitled to call witnesses. It is true, as the learned Judge has observed, that the appellant had not specifically asked for an opportunity to call any evidence, but I do not think that anything ever happened which could put him in mind that he was appearing at a formal enquiry and that he was to ask for an opportunity to tender evidence, if he wished to tender evidence. I am, therefore, of opinion that since no <ORG> or Enquiring Officer was ever appointed and all that happened was that the appellant was summoned for interview with his superior Officer, it cannot be said that having had an opportunity to call evidence, the appellant had not claimed it and that therefore he is estopped.

The result, as I see it, is that the appellant being entitled to a proper enquiry and entitled to an opportunity to snow cause thereat in a proper manner was not granted such an opportunity. The order passed against him cannot, therefore, be sustained.

16. The next question is what order we should make. In my view the proper order to make will be not merely to quash the order passed against the appellant, but also to give further directions. Certain charges were framed, the appellant submitted his explanation and the position is that thereafter the matter did not proceed according to law and that all that happened subsequently must be quashed as having been illegal. This, however, will not affect such portion of the proceedings as was legal which will remain valid to be proceeded with and concluded if desired.

17. For the reasons given above, this appeal is allowed, the order of the learned Judge dated 29-5-1956, is set aside and the order of discharge dated 28-3-1953, passed against the appellant by the State Government is quashed. We direct further that if Government be so minded, they will be at liberty to continue the proceedings in accordance with law from the stage at which the appellant had furnished his explanation of the charges framed against him but no enquiry had yet been held and pass such orders as may be lawful and proper according to the result of such proceedings.

*(As regards the order of suspension passed against the appellant, the order of his discharge being now quashed, it will be governed, so far at least the period subsequent to the date of the order of discharge is concerned, by the principles laid down by <ORG> in the case of <CITATION> )).

18. The appellant will have the costs of this appeal from respondent No. 3, the State of West Bengal hearing fee five gold mohurs.

<NAME>, J.

19. I agree.


PETITIONER: <NAME> Vs. RESPONDENT: UNION OF INDIA & ANR. DATE OF JUDGMENT: 22/01/1998 BENCH: B.N. KIRPAL, S.P. KURDUKAR ACT: HEADNOTE: JUDGMENT:

THE 22ND DAY OF JANUARY, 1998 Present:

Hon'ble Mr. Justice <NAME> Hon'ble MR. Justice <NAME>, Sr. Adv., <NAME>, <NAME>, Ms. <NAME>, Ms. <NAME>, Ms. <NAME>, Advs, with him for the appellant <NAME>, Sr. Adv., <NAME>, <NAME>, <NAME>, end Ms. <NAME>, Advs, with him for the Respondents.

O R D E R The following order of the Court was delivered: Heard learned counsel for the parties. In the instant case interest was sought to be levied on the appellant under sec. 220(2) of the Income-Tax Act on account of default having been committed by the appellant in payment of Income Tax within time. In order to avoid this levy, the appellant filed an application under sub-section (2.A) of sec.220 before <ORG>, inter-alia, stating facts and reasons as to why the amount of interest which was payable should be reduced, if not waived altogether. Reasons for seeking a favourable order were contained in t he application.

The applicant received a letter date 29th January, 1087 whereby this application was rejected. The said letter reads as follows:-

"Please refer to your petition dated nil and further petition dated 24.11.86 on the subject mentioned considering the application filed by you and the report of <ORG> in the matter, the <ORG> is of the view that the conditions as laid down in section 220(2A) are not satisfied in your case and hence regrets its inability to interfere in the matter."

A writ petition under Art.226 of the Constitution was then filed in <ORG> of Delhi and it was contended that while rejecting the application <ORG> had given no reasons. <ORG> observed, while dismissing the Writ Petition, that the order of the <ORG> could not be said to be vitiated for this reason.

When an application is filed under sub-section (2A) of Sec.220 the authority concerned is called upon to take a quasi judicial decision. If it is satisfied that the reasons contained in the application would bring the case under Clauses (i) (ii) and (iii) of sec.220 (2A) then it has the power either to reduce or waive the amount of interest. Even though in the said sub-section it is not stated that any reasons are to b e recorded in the order deciding such an application, it appears to us that it is implicit in the said provision that whenever such an application is filed the same should be decided by a specking order. Principles of natural justice in this regard would be clearly applicable. It will be seen that a decision which is taken by the authority under sec.220 (2A) can be subjected to judicial review, as was sought to be done in the present case by filing a petition under Art-226, this being so and where the decision of the application may have repercussion with regard to the amount of interest which an assessee is required to pay it would be imperative that some reasons are given by the authority while disposing of the application. Mr. <NAME>, the learned senior counsel for the appellant has strongly relied upon the observations of this Court in <ORG> V. <ORG>. (1976) 2 SCC 981 where at page 986 it has been stated that where an authority makes an order in exercise of its quasi judicial function it must record its reasons in support of the order it makes. In other words, every quasi judicial order must be supported by reasons. In our opinion, the observations in that case would apply in the present case also.

We may here note the contention of Mr. <NAME> that in respect of the assessment year in question sec.220(2A) was not applicable as this sub-section was inserted after the demand was raised. We express no opinion on this question because this will be one of the matters which the authority concerned may have to decide. With the amendment being made in sub-section (2A) an application to waive of interest has now to be decided by the Chief Commissioner or Commissioner, as the case may be. We, accordingly, allow this appeal, s et aside the order of <ORG> and of <ORG> and restore the appellant's application under sec.220 (2A) to the file of Chief Commissioner, Delhi and direct that the same should be disposed of at an early date in accordance with law. There will be no order as to costs.


<CITATION> .

1. In this case the assessee, Messrs. Rohtas Industries Limited, is a public limited company incorporated under the Indian Companies Act and manufactures various commodities including cement. On 4th of June 1942, an agreement, which was to be valid for ten years, was entered into between the assessee and some other cement manufacturing companies, namely, <ORG>, <ORG> and <ORG> (hereinafter called <ORG>) on the one hand and <ORG> (hereinafter called <ORG>) on the other hand, whereby all <ORG> appointed <ORG> to be "the sole and exclusive sales managers for the sale of their cement during the period of the agreement" and it was stipulated that they will not themselves directly or indirectly sell or export cement to any customer. It appears that on 1st of October 1944, the Bihar Sales Tax Act, 1944, came into operation and the assessee was registered as a dealer under that Act in the Shahabad circle. In respect of assessments of sales tax for the six quarters ending on 30th of June 1947, the assessee claimed deductions under the various clauses of Section 5 (2) (a), Bihar Sales Tax Act, 1944. The claim was disallowed by the Commissioner of Sales Tax on the ground that the sales to third parties were not the sales of the assessee but were the sales of <ORG>. It was contended on behalf of the assessee that <ORG> was not an independent entity but was a selling organization of <ORG>, including the assessee. The argument was rejected by the Commissioner of Sales Tax on the ground that under the agreement of 4th of June 1942, there was no contract of agency but there was contract of sale between <ORG> and <ORG>. The assessee took the matter in revision to <ORG>, but the revision application was dismissed and <ORG> affirmed the order of the Commissioner of Sales Tax, holding that the petitioner could not be regarded as seller of cement to dealers and consumers but the petitioner was seller of cement to <ORG>.

2. Under Section 21 (1) of the Bihar Sales Tax Act of 1944 <ORG> has submitted a case for the opinion of <ORG> on the following question of law :

"Whether on the construction of the agreement dated 4-6-1942, between the assessee Messrs. <ORG>, Dalmianagar (along with 3 other Manufacturing Companies) and <ORG>, the cement delivered, despatched or consigned by the assessee to <ORG>, or to their order, or in accordance with their directions are sales to the latter, within the meaning of the Bihar Sales Tax Act (Bihar Act VI of 1944)."

3. In order to find out what is the true legal relationship between the parties it is necessary to analyse the various clauses of the agreement dated 4-6-1942 between the assessee and the other manufacturing companies and <ORG>. Under Clause 2 of the agreement the manufacturing Companies "do and each of them doth hereby appoint <ORG> to be the sole and exclusive sales managers for the sale of their cement during the period of the agreement." Clause 3 of the agreement is very important and it is necessary to reproduce it in full :

"3. <ORG> hereby agree with <ORG> and mutually between themselves that on and after the First of January one Thousand nine hundred and forty-one none of them will directly or indirectly sell or deliver or export or consign any cement including rapid hardening cement or coloured cement or any special cement to any person firm or company save and except to <ORG> or to the order of or as directed by <ORG> and all contracts entered into by any of <ORG> for the sale and supply of cement prior to First of January one thousand nine hundered and forty-one which have to be carried out during the period of this agreement shall be carried out and executed by and through <ORG>. <ORG> shall be bound to carry out all contracts entered into by any of <ORG> prior to first January, One thousand nine hundred and forty-one so far as the same have to be carried out during the period of this agreement. Each of <ORG> has delivered to <ORG> all contracts for sale of cement entered into prior to First January One thousand nine hundred and forty-one and declares that the contracts so disclosed are the only contracts for sale or supply of cement outstanding on First January One thousand nine hundred and forty-one."

It is clear from Clauses 2 and 3 of the agreement that <ORG> have no power to sell cement to third parties and the right of sale is exclusively vested in <ORG>. In other words, the assessee cannot sell or deliver cement to anybody except to <ORG> or to its order or direction. This is one of the important points of consideration in judging the true nature of the contract. Clause 5 is in the following terms :

"5. Each of the said Manufacturing Companies shall be paid by <ORG> a uniform basic payment of Rs. 24 per ton, Free on Rail or Free on Board or Free on Truck or Lorry, at works as the case may be, for all cement other than rapid hardening cement or coloured cement or special cement packed in good and sound gunny bags delivered by such Manufacturing Company to or to the orders of <ORG> or in accordance with the instructions of <ORG> provided however that the basic payment above mentioned shall be subject to revision from time to time by the Directors of <ORG>. Any of the Manufacturing Campanies supplying rapid hardening cement or coloured cement or other special cement to or to the order of <ORG> or in. accordance with the instructions of the Marketing. Company shall be paid in addition to the basic payment per ton Free on Rail or Free on Board, Free of Truck or Free on Lorry, at works above mentioned such sum per ton as <ORG> may fir from time to time at their discretion having regard to the difference between the selling price of such rapid hardening cement or coloured cement or other special cement and the selling price of ordinary cement. In the event of any of the Manufacturing Companies being called upon to supply cement or rapid hardening cement or coloured cement or special cement in special packing such as double gunny, paper sacks, paper-lined jute bags, steel drums or barrels, <ORG> shall pay to <ORG> in addition to the uniform basic payment herein before mentioned such sum per ton as may seem fit to <ORG>. <ORG> shall pay each of the Manufacturing Companies the uniform basic payment hereinabove mentioned together with the additional sum, if any, for special cement and/or special packing within two months from the date of despatch by such Company."

Under this clause <ORG> agrees, to make a uniform basic payment of Rs. 24 per ton, Free on Rail or Free on Board or Free on Truck or Lorry for all cement other than rapid hardening cement or coloured cement or special cement for which. additional payments are to be made at the discretion of <ORG>. The clause further provides that in the case of special packing, such as double gunny, paper sacks, paperlined jute bags, steel drums or barrels, <ORG> shall make additional payment to <ORG> of such sum per ton "as may seem fit to <ORG>." The clause further stipulates that <ORG> shall make the uniform basic payment together with the additional sum, if any, for special cement or special packing, within two months from the date of despatch by such Company.

4. Clause 6 of the agreement is also important and is in the following terms :

"6. <ORG> shall sell the said cement at such price or prices and on such terms as they may in their discretion think fit and may enter into such contracts for the sale or supply of cement or rapid hardening cement or coloured cement or special cement and such terms and conditions as they may think fit Ordinarily the cement <ORG> in fixing the selling prices shall have regard to the cost of production provided however that whenever or wherever <ORG> has to start competition against or to sell in competition against any competing selling organisation or manufacturer or body of manufacturers the <ORG> shall be free to fix prices even below cost.

Under this clause <ORG> is empowered to fix the selling prices for the cement in its discretion. <ORG> is also authorised to enter into such contracts for the sale and supply of cement and on such terms and conditions as it may think fit. There is a direction that <ORG> in fixing the selling prices shall have regard to the cost of production, but there is a proviso that if <ORG> has to start competition against or to sell in competition against any competing selling organization or body of manufacturers <ORG> shall be free to fix prices even at low cost. It is important to notice that <ORG> is given a full discretion to fix the selling prices and it is apparent that even if <ORG> sells at low prices the loss is not borne by the assessee but the implication is that the loss is borne by <ORG>.

5. Clause 7 of the agreement recites as follows: "7. Each of the said Manufacturing Companies shall deliver, despatch or consign cement in accordance with the orders and instructions of <ORG> and from the Factory or works specified by <ORG>, provided however that each such Manufacturing Company shall have the right to arrange for any other works of the Company of any order of the Manufacturing Companies to deliver any quantity of cement which such Company itself was called upon to deliver provided however that as to which works or Company should be permitted to arrange such delivery will be decided upon by <ORG> at their discretion but in making such decision the Marketing ompany shall give due consideration to the obligation to make up the quota for each group under Clause 8."

Clause 11 of the agreement is to the following effect :

"11. Each of <ORG> guarantees that all the Portland Cement or other cement manufactured by it and/or supplied to the orders of <ORG> shall comply in all respects with the requirements of <ORG> for the time being in force and shall be packed in good and sound gunny bags of uniform quality specified by <ORG> or such other special packing as may be directed by <ORG> and it shall indemnify <ORG> against any complaints or claims as to quality, weight and condition of the cement delivered against their orders or as to the bags or other packing in which it is packed."

Clause 24 of the agreement provides that the surplus profits made by <ORG> shall be divided among the Manufacturing Companies in proportion to the quantity of cement supplied by <ORG> to the order of <ORG>. Clause 24 is to the following effect :

"24. <ORG> agree that if after all payments whether by way of basic payment or otherwise to <ORG> pursuant to the clauses herein above contained and after providing for all operating and working expenses and other payments charges and disbursements of <ORG> including all advertisement and propaganda charges and expenses and including the expenses of <ORG> at present owned by the Association but which will now be taken up by <ORG> and after setting aside such sums as <ORG> may think fit for depreciation and for Employees Provident Fund any surplus is left, <ORG> will, alter paying a dividend not exceeding 6 per cent per annum on its paid up capital, divide the balance of the surplus among <ORG> in proportion to the number of tons of cement of every variety and kind supplied by such Manufacturing Company to the order ot <ORG>."

It is important to notice that there is no provision in this clause that the loss sustained by <ORG> also may be shared among the Manufacturing Companies.

6. It is true that the expression "selling agents" is used in the preamble to the agreement, and the expression "sales manager" in clause 2 of the agreement. But the use of these expressions is not decisive on the question of interpretation. We have to look at what is the real transaction between the parties and not at what the parties themselves choose to call it. The essence of a contract of sale is the transfer of title of goods for a price paid or promised to be paid. The transferee in such case is liable to the transferor, as a debtor for the price to be paid and not as an agent in a fiduciary capacity for the proceeds of the sale. The essence of agency to sell is delivery of goods to a person who is to sell them, not as his own property but as the property of the principal, and who is therefore liable to account for the sale proceeds. In the present case <ORG> is at liberty to enter into contracts with third parties and to fix the selling prices at its discretion and receive payments from such third parties at any time it likes. But <ORG> is bound, if it sells the goods, to pay the assessee for such goods at a fixed rate of Rs. 24 per ton, and the payment is to be made within a fixed period, that is, within two months from the date of despatch. That is the gist of Clauses 5, 6, 7, and 11 of the agreement. Clause 3 of the agreement is also important, for the assessee cannot sell under that clause any cement to anybody or deliver the cement to anybody except to <ORG> or to the order of <ORG> or under its direction. As I have already stated, <ORG> is bound to make the basic payment of Rs. 24 per ton under Clause 5 of the agreement, within a period of two months from the date of despatch. Under Clause 6 <ORG> has the discretion to sell the cement at such price as it may fix to third parties and receive payment at any time it likes. It is manifest, therefore, that <ORG> is not liable to account for the sale proceeds to the assessee and <ORG> has no fiduciary character in respect of the goods despatched by the assessee. My concluded opinion is, therefore, that there is no contract of agency between the assessee and <ORG> and that their relationship is one of seller and purchaser in the legal sense. Learned Counsel on behalf of the assessee referred to Clause 24 of the agreement which provides that surplus profits made by <ORG> shall be divisible among the Manufacturing Companies in proportion to the quantity of cement supplied. I do not think that Clause 24 qualifies the legal effect of the other important clauses of the agreement. In the eye of law <ORG> has a distinct legal personality and an independent legal existence from that of the assessee and I am satisfied, for the reasons already given, that the cement delivered, despatched on consigned by the assessee to <ORG> or to its order or in accordance with its directions were sales by the assessee to <ORG> and so liable to be taxed under the Bihar Sales Tax Act (Bihar Act 6 of 1944).

7. The view that I have taken is borne out by a decision of <ORG> in Ex parte White; In re, <<ORG>AME>, (1871) 6 Ch App 397 (A). In that case <ORG> were in the habit of sending goods for sale to <ORG>, who was a partner in the firm of <ORG> but received these goods on his private account. The course of dealing between <ORG> and <ORG> was that the goods were accompanied by a price list. <ORG> sold the goods on what terms he pleased, and each month sent to <ORG> an account of the goods he had sold, debiting himself with the prices named for them in the price list and at the expiration of another month he paid the amount in cash without any regard to the prices at which <<ORG>AME> had sold the goods, or the length of credit he had given. He paid the moneys which he received from the sales into the general account of his firm, and made his payments to <ORG> through his firm, with whom he Kept an account of moneys paid in and drawn out by him in respect of moneys unconnected with the partnership, which account included many items wholly unconnected with the goods of <ORG> having executed a deed of arrangement with their creditors, <ORG> sought to prove against the joint estate for the amount standing to <ORG>'s credit with his firm, on the ground that the same arose from moneys belonging to <ORG>, and improperly placed by <ORG> in the hands of his firm. It was held by <ORG> that such proof could not be admitted, for that course o£ dealing shewed that although both parties might look upon the business as an agency, <ORG>. did not, in fact, sell the goods as agent of <ORG>, but on his own account, upon the terms of his paying <ORG> for them at a fixed rate if he sold them, and the moneys he received for them were therefore his own moneys, which <ORG>, had no right to follow. At p. 402 Lord Justice <NAME> states in the course of his judgment as follows :

"Now, it is said that he was a <ORG> agent, and no doubt it requires a very minute examination of what the course of business is, to distinguish between a <ORG> agent, and a person who is an agent up to a certain point, that is to say, until he has sold the goods, but who, when he has sold the goods, has purchased them on his own credit and sold them again on his own account.

And no doubt persons may suppose that their relationship is that of principal and agent, when in point of law it is not. It is quite clear that <NAME>, if he sold these goods, was to pay <ORG> for them, at a fixed price that is to say, a price fixed before-hand between him and them and at a fixed time. Now, if it had been his duty to sell to his customers at that price, and to receive payment from them at that time, then the course of dealing would be consistent with his being merely a del credere agent, because I apprehend that a del credere agent, like any other agent, is to sell according to the instructions of his principal, and to make such contracts as he is authorized to make for his principal; and he is distinguished from other agents simply in this, that he guarantees that those persons to whom he sells shall perform the contracts which he makes with them; and therefore, if he sells at the price at which he is authorized by his principal to sell, and upon the credit which he is authorized by his principal to give, and the customer pays him according to his contract, then, no doubt, he is bound, like any other agent, as soon as he receives the money, to hand it over to the principal. But it the consignee is at liberty according to the contract between him and his consignor, to sell at any price he likes, and receive payment at any time he likes, but is to be bound, if he sells the goods, to pay the consignor for them at a fixed price and a fixed time in my opinion, whatever the parties may think, their relation is not that of principal and agent. The contract of Sale which the alleged agent makes with his purchasers is not a contract made on account of his principal for he is to pay a price which may be different, and at a time which may be different from those fixed by the contract. He is not guaranteeing the performance, by the persons to whom he sells, of their contract with him, which is the proper business of a del credere agent; but he is to undertake to pay a certain fixed price for those goods, at a certain fixed time, to his principal, wholly independent of what the contract may be which he makes with the persons to whom he sells; and my opinion is that, in point of law, the alleged agent in such a case is making, on his own account, a contract of purchase with his alleged principal, and is again re-selling,"

There is a decision to a similar effect in <ORG> v. <ORG>, 1932-1 K. B. 710 (B). In that case there was an agreement in writing by which certain manufacturers of bricks and other building materials appointed a firm of builders merchants' sole selling agents of all bricks and other materials manufactured at their works. The agreement was expressed to be for three years and afterwards continuous subject to twelve months' notice by either party. While the agreement was in force the manufacturers informed the merchants that they intended in the future to sell their goods themselves without the intervention of any agent and thereafter they effected sales to customers directly. It was held by <ORG> that the agreement was one of vendor and purchaser and not one of principal and agent. The same principle is enunciated in another case, <NAM<ORG>> v. <NAM<ORG>>, (1883) 8 A. C. 309 (C), in which there was a contract between the defendant and <ORG>, which in its terms purported to be one of guarantee or agency; that is to say, the defendant guaranteed the sale of <ORG>'s property in whole or by lots at a fixed price, <ORG> giving the defendant a power of attorney to deal with the property as he thought fit, and agreeing that he should receive any surplus over and above the fixed price as his commission on and recompense for the said guarantee. It was held by <ORG>, upon a construction of the agreement, that the transaction was really a sale and that the defendant was liable to pay duty on his purchase-money under Act II of 1863. At page 310 Sir <NAME>, who delivered the opinion of the <ORG>, has stated as follows :

"The declaration in the action contained two counts respectively relying upon these two clauses of the Act; but with respect to the second count no question now arises. The question arises solely upon the first count, which relies upon the second section of the Act; and the question is whether there was or was not a sale of a certain property from <NAME> to <NAME>. The law of the Cape with respect to the contract of sale is thus stated by the Chief Justice: 'Under our law, as under the Roman law, a sale may be defined as a contract in which one person promises to deliver a thing to another, who on his part promises to pay a certain price.' In Van Leeuwen, cap. 17, Section 1 , is this passage;

'The purchase is understood to be accomplished as soon as the price and the mutual condition has been fixed, although the money had not been paid, nor the delivery of the article made, unless a real misunderstanding had taken place in the articles sold. Mr. Justice <NAME>, in his treatise on the Contract of Sale, at p. 177, quotes <NAME> thus: In general a contract of sale is considered to have become perfect so soon as the parties are agreed upon the "price for which the thing is to be sold. This rule has its operation when the sale is of an ascertained thing, and is pure and simple; Si id quod venierit appareat quid quale quantum sit et pretum et pure venit perfecta est emptio.

It may be observed that, even if our law governed the case, which it does not, the definition given by Mr. Justice <NAME> in his treatise on the Contract of Sale, which is quoted by the Chief Justice, would apply."

8. I should also refer in this connection to the following passage from the judgment of Lord <NAME> in <ORG> v. <ORG>, ILR 49 Mad. 1 at p. 6 : (AIR 1925 P C 16 L at p. 163) (D).

"There is great force in the observations which were made to their Lordships upon the extension which modern business has given to the terms 'agent' and agency. In many trades, particularly, for instance, in the motor-car trade the so-called agent is merely a favoured and favouring buyer, one who under an overriding contract undertakes to do his best to find a market for the manufacturer's stock, who is given some special advantages, such as a special discount or preference in complying with his orders; but who in each particular contract acts ay a buyen from the manufacturer and sells at whatever price he can get, unless--as is sometimes the case--he is by a special provision in the overriding contract forbidden to sell too cheaply or required not to spoil the market by asking too much.

It would be quite possible that, in the present case, the position of the respondents, though frequently described by both parties as that of agents, was, notwithstanding, merely that of agents according to the modern business extension of the phrase, so that they would be entitled to treat themselves as buyers from the appellants and to sell at the best price they could get, in which case any damages which they would have to pay to the buyers from themselves on account of the nondelivery of the cargo would be damages which they in their turn could recover as damages from the appellants."

9. The view that T have expressed on the interpretation of the agreement dated 4-6-1942, in this case is also borne out by a decision of <ORG> in <ORG> (Part Cargo Ex), (1917) 33 T L R 292 (E). In that case the appellants were <ORG>; which made an agreement with <ORG>, whereby the latter were to act as the appellants "selling agents." The agreement provided that the appellants were to be paid not what their goods realised on being sold by <ORG> but an arranged price. Under that agreement they shipped a quantity of pig lead to <ORG>, and it was seized as prize. In this state of facts it was held by <ORG> that before the seizure the appellants had parted with the property in the goods to <ORG> and therefore the goods must be condemned. Therefore, for the reasons I have expressed, I hold that upon a proper construction of the agreement dated 4-6-1942, between the assessee and <ORG>, the cement delivered, despatched or consigned by the assessee to <ORG>, or to its order, or in accordance with its direction, are sales to the latter within the meaning of the Bihar Sales Tax Act (Bihar Act VI of 1944), and the question of law referred to <ORG> by <ORG> must be answered against the assessee and in favour of the State of Bihar. The assessee must pay the costs of this reference. Hearing fee Rs. 250.

<NAME>, J.

10. I agree.


CASE NO.: Appeal (civil) 7966-67 of 1996 PETITIONER: Commissioner of Income Tax RESPONDENT: M/s. Hindustan Bulk Carriers DATE OF JUDGMENT: 17/12/2002 BENCH: ARIJIT PASAYAT JUDGMENT:

J U D G M E N T ARIJIT PASAYAT, J.

A question of seminal importance relating to the period for which interest in terms of Section 234B of the Income Tax Act, 1961 (in short 'the Act') can be levied when <ORG> (in short 'the <ORG>') passes an order under Section 245D of the Act, is the subject matter of adjudication in these appeals. These appeals are directed against the common judgment of <ORG> of the <ORG> (in <ORG> In re and Ors. (1995 (215) ITR ATS 1) which dealt with five situations where such questions may arise. The situations according to <ORG> are as follows:

"(i) The income is determined under Section 143(1) but no regular assessment under Section 143(3) or 144 is made with or without there being a notice under section 143(2) and /or section 142(1) .

(ii) A regular assessment is made under Section 143(3) or section 144 in addition to the determination of the income under section 143(1) and an appeal is pending before the first appellate authority.

(iii) Only a return of income is furnished without or in pursuance of a notice under section 142(1) or section 148 and the income is neither determined under section 143(1) nor under section 143(3) or section 144 .

(iv) The assessment made under section 143(3) or section 144 is reopened under section 147 and neither any return of income is furnished in response to the notice under section 148 nor is the order of re- assessment made by the Assessing Officer.

(v) A reassessment is made under section 147 read with section 143(3) or section 144 and an appeal is pending before the first appellate authority."

Per majority <ORG> decided as follows:

"Interest under Section 234B will be chargeable:

In cases I and III up to the date of the order passed by <ORG> under section 245D(4) .

In case II up to the date of regular assessment made under section 143(3) or section 144 of the Act by the Assessing Officer.

In case IV from the date of regular assessment made by the Assessing Officer under section 143(3) or section 144 , to the date of the order made by <ORG> under section 245D(4) .

In case V to the date of the re-assessment made by the Assessing Officer from the date of regular assessment under section 143(3) / 144 ".

In support of the appeals, learned counsel for the revenue submitted that the view expressed by <ORG> is clearly unsustainable. Chapter XIX-A which was introduced in the Act makes a distinction between income disclosed by the assessee before the Assessing Officer and undisclosed income disclosed in an application filed before the <ORG>. In the latter situation, the <ORG> gets jurisdiction if prescribed conditions are fulfilled. When an assessee files a petition under Section 245C , there is a liability to pay the additional tax in respect of the undisclosed income. An exclusive jurisdiction is conferred on the <ORG> and its order is conclusive. The expressions 'regular assessment' or 're-assessment' as appearing in Sections 234A , 234B and 234C relate to income which was earlier disclosed before the income-tax authorities. For all practical purposes, the <ORG> exercises original jurisdiction and the orders passed under Section 245D(4) and consequentially under sub-section (6) are in the nature of original orders determining liability of tax, penalty and interest and quantification thereof. It has to be borne in mind that provisions relating to settlement as appearing in Chapter XIX-A constitute a complete code. Therefore, the view of <ORG> with reference to regular assessment as defined under Section 2(40) , or re-assessment under Section 147 has no relevance. The liability to pay interest under Sections 234A , 234B and 234C , as the case may be, is of mandatory nature as was observed by a Constitution Bench of this Court in <CITATION> . (2001 (252) ITR 1). The starting point of the terminus for payment of interest is not in dispute. It is only the end point. The same has to be the date on which the order is passed by the <ORG> under Section 245D and not an earlier point of time.

Per contra, learned counsel for the assessee has submitted that both points of time terminus have been fixed in the provisions, that is, sub-section (4) of each of the aforesaid three provisions. With reference to the expression 'an order of <ORG> under sub-section (4) of Section 245D ' in these provisions, it is submitted that sub-section (4) deals with the quantum of interest chargeable with reference to the fixed terminus points and it cannot be beyond the date of regular assessment or re- assessment, as the case may be, for the purpose of Section 234B . Alternatively, it is submitted that since no terminus has been provided specifically, there is no liability to pay interest, more so when there is no charging section. Reference was also made to <CITATION> . (1994 (206) ITR 443) to substantiate the stand.

In the present case, the dispute relates to the period for which interest is chargeable under Section 234B . Sections 234A , 234B and 234C relate to three different types of infractions. Under Section 234A , interest is chargeable for default in furnishing a return of income. Levy is attracted when return of income for any assessment year under sub-section (1) or sub- section (4) of Section 139 or in response a notice under sub-section (1) of Section 142 is furnished after the due date or is not furnished. Levy in terms of Section 234B to which the present cases relate, is attracted for defaults in payment of advance tax. The provision reads as follows:

" Section 234B : Interest for defaults in payment of advance tax.

(1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.

Explanation 1- In this section, "assessed tax" means, -

(a) for the purposes of computing the interest payable under section 140A , the tax on the total income as declared in the return referred to in that section;

(b) in any other case, the tax on the total income determined under sub-section (1) of section 143 or on regular assessment, as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income.

Explanation 2. Where, in relation to an assessment year, an assessment is made for the first time under section 147 , the assessment so made shall be regarded as a regular assessment for the purposes of this section.

Explanation 3. In Explanation 1 and in sub-section (3) "tax on the total income determined under sub-section (1) of section 143 " shall not include the additional income-tax, if any, payable under section 143 .

(2) Where, before the date of determination of total income under sub-section (1) of section 143 or completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise, -

(i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section;

(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.

(3) Where, as a result of an order of re-assessment or re-computation under section 147 , the amount on which interest was payable under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent for every month or part of a month comprised in the period commencing on the day following the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made as is referred to in sub-section (1) following the date of such regular assessment and ending on the date of the re-assessment or re-computation under section 147 , on the amount by which the tax on the total income determined on the basis of the re-assessment or re-computation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment aforesaid.

(4) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of <ORG> under sub-section (4) of section 245D , the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and

(i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly;

(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.

(5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years."

The levy is attracted where subject to other provisions in the section in any financial year an assessee who is liable to pay the advance tax under Section 208 , has failed to pay such tax or where advance tax paid by such assessee under the provisions of Section 210 is less than ninety per cent of the assessed tax. The beginning point is first day of April next following the relevant financial year. Different end points are prescribed. They are (I) up to the date of determination of total income under sub-section (1) of Section 143 ; (ii) the date of regular assessment when a regular assessment is made and (iii) where there is an order of re-assessment or re-computation under Section 147 , or the difference of assessed income on re-assessment or re- computation and originally assessed income till date of re-assessment or re- computation, as the case may be. Sub-section (3) provides the modalities to be adopted.

Section 234C deals with interest for deferment of advance tax. As noted above, great emphasis is laid by the assessee on sub-section (4) of Section 245D which, inter alia, provides that where as a result of an order of <ORG> under sub-section (4) of Section 245D the amount on which interest was payable under sub-section (1) or sub- section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly. From this, according to the assessee, the inference to be drawn has to be that only the quantum of income on which interest is charged which is varied, but the period remains fixed.

One basic feature of Chapter XIX is that it relates to income which was not disclosed before the income-tax authorities. This is evident from Section 245C which reads as follows:

" Section 245C : Application for settlement of cases. 245C(1): An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to <ORG> to have the case settled and any such application shall be disposed of in the manner hereinafter provided:

Provided that no such application shall be made unless, -

(a) the assessee has furnished the return of income which he is or was required to furnish under any of the provisions of this Act; and

(b) the additional amount of income-tax payable on the income disclosed in the application exceeds one hundred thousand rupees.

(1A) For the purposes of sub-section (1) of this section and sub-sections (2A) to (2D) of section 245D , the additional amount of income-tax payable in respect of the income disclosed in an application made under sub- section (1) of this section shall be the amount calculated in accordance with the provisions of sub-sections (1B) to (1D).

(1B) Where the income disclosed in the application relates to only one previous year, -

(i) if the applicant has not furnished a return in respect of the total income of that year (whether or not an assessment has been made in respect of the total income of that year), then, except in a case covered by clause (iii), tax shall be calculated on the income disclosed in the application as if such income were the total income;

(ii) if the applicant has furnished a return in respect of the total income of that year (whether or not an assessment has been made in pursuance of such return), tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income;

(iii) if the proceeding pending before <ORG> is in the nature of a proceeding for reassessment of the applicant under section 147 or by way of appeal or revision in connection with such reassessment, and the applicant has not furnished a return in respect of the total income of that year in the course of such proceeding for reassessment, tax shall be calculated on the aggregate of the total income as assessed in the earlier proceeding for assessment under section 143 or section 144 or section 147 and the income disclosed in the application as if such aggregate were the total income.

(1C) The additional amount of income-tax payable in respect of the income disclosed in the application relating to the previous year referred to in sub-section (1B) shall be, -

(a) in a case referred to in clause (i) of that sub- section, the amount of tax calculated under that clause;

(b) in a case referred to in clause (ii) of that sub- section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income returned for that year;

(iii) in a case referred to in clause (iii) of that sub- section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income assessed in the earlier proceeding for assessment under section 143 or section 144 or section 147 ".

(Underlined for emphasis) Prior to substitution by Finance Act , 1987 w.e.f. 1.6.1987, the proviso to sub-section (1) read as follows:

"provided that no such application shall be made unless the additional amount of income tax payable on the income disclosed in the application exceeds fifty thousand rupees."

The word fifty thousand rupees in the earlier proviso has been substituted by the expression "one hundred thousand rupees" by the Finance Act , 1995 w.e.f. 1.7.1995. Some changes were introduced by Finance Act , 1987 w.e.f. 1.6.1987 in sub section (1B) and (1C) which do not have much importance for the present appeals.

The <ORG> is not bound to proceed with any application filed under Section 245C as is clear from Section 245D . The special provisions so far as relevant read as follows:

Section 245D : Procedure on receipt of an application under section 245C .

"245D(1)- On receipt of an application under section 245C , <ORG> shall call for a report from the Commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, <ORG> may, by order, allow the application to be proceeded with or reject the application :

Provided that an application shall not be rejected under this sub-section unless an opportunity has been given to the applicant of being heard:

Provided further that the Commissioner shall furnish the report within a period of forty-five days of the receipt of communication from <ORG> in case of all applications made under section 245C on or after the 1st day of July, 1995 and if the Commissioner fails to furnish the report within the said period, <ORG> may make the order without such report.

(2) x x x x x (2A) Subject to the provisions of sub-section (2B), the assessee shall within thirty-five days of the receipt of a copy of the order under sub-section (1) allowing the application to be proceeded with, pay the additional amount of income-tax payable on the income disclosed in the application and shall furnish proof of such payment to <ORG>.

(2B) If <ORG> is satisfied, on an application made in this behalf by the assessee, that he is unable for good and sufficient reasons to pay the additional amount of income-tax referred to in sub- section (2A) within the time specified in that sub- section, it may extend the time for payment of the amount which remains unpaid or allow payment thereof by instalments if the assessee furnishes adequate security for the payment thereof.

(2C) Where the additional amount of income-tax is not paid within the time specified under sub-section (2A), then, whether or not <ORG> has extended the time for payment of the amount which remains unpaid or has allowed payment thereof by instalments under sub-section (2B), the assessee shall be liable to pay simple interest at fifteen per cent per annum on the amount remaining unpaid from the date of expiry of the period of thirty-five days referred to in sub-section (2A).

(2D) x x x x x (3) Where an application is allowed to be proceeded with under sub-section (1), <ORG> may call for the relevant records from the Commissioner and after examination of such records, if <ORG> is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case.

(4) After examination of the records and the report of the Commissioner, received under sub-section (1), and the report, if any, of the Commissioner received under sub-section (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorized in this behalf, and after examining such further evidence as may be placed before it or obtained by it, <ORG> may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner under sub-section (1) or sub-section (3).

(5) x x x x x (6) Every order passed under sub-section (4) shall provide for the terms of settlement including any demand by way of tax, penalty or interest] the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by <ORG> that it has been obtained by fraud or misrepresentation of facts.

(6A) Where any tax payable in pursuance of an order under sub-section (4) is not paid by the assessee within thirty-five days of the receipt of a copy of the order by him, then, whether or not <ORG> has extended the time for payment of such tax or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at fifteen per cent per annum on the amount remaining unpaid from the date of expiry of the period of thirty-five days aforesaid."

The principles indicated by <ORG> in <NAME>'s case (supra) are as follows:

"1. <ORG> in exercise of its power under Section 245D(4) and (6), does not have the power to reduce or waive interest statutorily payable under Sections 234A , 234B and 234C , except to the extent of granting relief under the Circulars dated 23rd May, 1996 issued by the <ORG> under Section 119 of the Act. While exercising the power derived under the Circulars of the <ORG>, the <ORG> does not act as a subordinate to the <ORG> but will be enforcing the relaxed provisions of the circulars for the benefit of the assessee in the process of settlement.

2. Interest due under the mandatory provisions like Sections 234A , 234B and 234C has to be included in the settlement.

3. Wherever the Act contemplated power to waive or reduction of interest to be exercised by any particular authority in any particular situation it has done so like in Sections 139(8) , 215(4) , 216 and Section 220(2A) of the Act.

4. Prior to Finance Act , 1987, the corresponding sections pertaining to imposition of interest used the expression 'may' but the change brought about in the Finance Act , 1987 is a clear indication that the intention of the legislature was to make the collection of statutory interest mandatory. The expression 'shall' is used deliberately."

Sub-section (1) of Section 245C makes it clear that at any stage of a case relating to him an assessee may make an application to the <ORG> disclosing fully and truly his income which has not been disclosed before the Assessing Officer. (Underlined for emphasis). To put it differently, an assessee cannot approach the <ORG> for settlement of his case in respect of an income which has already been disclosed before the Assessing Officer. The income disclosed as contemplated is in the nature of voluntary disclosure of concerned income.

Section 245F dealing with powers and procedure of <ORG> provides that in addition to the powers conferred on the <ORG> under Chapter XIX-A, it has all the powers which are vested in the income-tax authority under the Act. Sub-section (2) is of vital importance and provides that where an application made under Section 245C has been allowed to be proceeded with under Section 245D , the <ORG> shall until an order is passed under sub-section (4) of Section 245D , subject to the provisions of sub-section (3) of that section have exclusive jurisdiction to exercise the powers and perform the functions of the income-tax authority under the Act in relation to the case. In essence, the <ORG> assumes jurisdiction to deal with the matter after it decides to proceed with the application and continues to have the jurisdiction till it makes an order under Section 245D . As noted by <ORG> in <NAME>'s case (supra), Section 245D(4) is the charging section and sub- section (6) prescribes the modalities to be adopted to give effect to the order. It has to be noted that the language used in Section 245D is "order" and not "assessment". The order is not described as the original assessment or regular assessment or re-assessment. In that sense, the <ORG> exercises a plenary jurisdiction. The assessee's stand before the Special Bench of the <ORG> was that there is no charging section for levy of interest. Such a plea did not find acceptance by <ORG> in <NAME>'s case (supra). The further plea that there is no requirement to pay interest as no points of terminus have been fixed is equally untenable because <ORG> held that the levy is mandatory. Equally, without substance is the plea taken that terminus has to be as provided in relation to disclosed income. It cannot be even countenanced that no interest is chargeable for that portion of the income forming part of the total income as determined by the <ORG> which was not earlier disclosed before the Assessing Officer.

The <ORG>'s power of settlement has to be exercised in accordance with the provisions of the Act. Though the <ORG> has sufficient elbowroom in assessing the income of the applicant and it cannot make any order with a term of settlement which would be in conflict with the mandatory provisions of the Act like in the quantum and payment of tax and the interest. The object of the legislature, as noted by <ORG>, in introducing Section 245C is to see that protracted proceedings before the authorities or in Courts are avoided by resorting to settlement of cases. In this process an assessee cannot expect any reduction in amounts statutorily payable under the Act. Under Section 245H , the <ORG> has the power to grant immunity to the assessee from prosecution and penalty. The immunity extends not only to penal provisions of the Act but to offences under the Indian Penal Code , 1860 (in short 'the IPC '), or under any other Central Act for the time being in force. Benefit of waiver or reduction in the imposition of penalty under the Act with respect to the cases covered by the settlement is extended as provided under Section 245H(1) . Here again, the immunity is not available in cases where the proceedings for prosecution for the indicated offences have been instituted before the date of receipt of the application under Section 245C . The immunity granted stands withdrawn in case of failure to pay sum specified in the order of settlement passed under sub-section (4) of Section 245D within the specified time or the extended time.

Harmonising various provisions of the Act and the legislative intent in introducing Chapter XIX-A, the position is indisputable that the end point of the terminus has to be the date on which the <ORG> passes an order under Section 245D(4) . Any other interpretation would lead to absurd result because the assessee who has concealed income is placed at a more advantageous position vis--vis one who has declared his income truly and fairly. By way of illustration it would be seen that a person who has disclosed rupees ten lakhs as income and paid advance tax correctly is in a way deprived use of the amount paid as advance tax for the period during which an assessee who has not disclosed the correct income and has disclosed rupees two lakhs before the Assessing Officer and subsequently goes before the <ORG> disclosing rupees eight lakhs makes use of the amount which was required to be paid as advance tax. It is for this default in not paying the correct advance tax that interest Section 234B is levied and has to be till the date of order under Section 245D(4) .

A construction which reduces the statute to a futility has to be avoided. A statute or any enacting provision therein must be so construed as to make it effective and operative on the principle expressed in maxim ut res magis valeat quam pereat i.e. a liberal construction should be put upon written instruments, so as to uphold them, if possible, and carry into effect the intention of the parties. (See <ORG> (10th Edition), page 361, <ORG> (7th Edition) page 95 and <NAME> on Statutes (11th Edition) page 221.) A statute is designed to be workable and the interpretation thereof by a <ORG> should be to secure that object unless crucial omission or clear direction makes that end unattainable. (See <NAME> v. Commissioner of Inland Revenue (1926) AC 37 p.52 referred to in <CITATION> (AIR 1959 SC 352), <CITATION> (AIR 1963 SC 1062).

The <ORG> will have to reject that construction which will defeat the plain intention of the legislature even though there may be some inexactitude in the language used. (See <NAME> v. <NAME> (1886) 11 AC 627 p.634 (PC), <NAME> v. <NAME> (1889) 22 CBD 513) referred to in <NAME> case (Supra).

If the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of the legislation we should avoid a construction which would reduce the legislation to futility, and should rather accept the bolder construction, based on the view that <ORG> would legislate only for the purpose of bringing about an effective result. (See <NAME> vs. <ORG> (1940) 3 All E.R. 549 (CL) referred to in <NAME> vs. Minister for Lands for NSW (1954) 3 All ER 514 (PC). The principles indicated in the said cases were reiterated by this Court in <CITATION> (AIR 1992 SC 1) The statute must be read as a whole and one provision of the Act should be construed with reference to other provisions in the same Act so as to make a consistent enactment of the whole statute.

The Court must ascertain the intention of the legislature by directing its attention not merely to the clauses to be construed but to the entire statute; it must compare clause with other parts of the law and the setting in which the clause to be interpreted occurs. [ <CITATION> . (AIR 1992 SC 81)]. Such a construction has the merit of avoiding any inconsistency or repugnancy either within a section or between two different sections or provisions of the same statute. It is the duty of the Court to avoid a head on clash between two sections of the same Act. [ <CITATION> (AIR 1997 SC 1006)] Whenever it is possible to do so, it must be done to construe the provisions which appear to conflict so that they harmonise. It should not be lightly assumed that <ORG> had given with one hand what it took away with the other.

The provisions of one section of the statute cannot be used to defeat those of another unless it is impossible to effect reconciliation between them. Thus a construction that reduces one of the provisions to a "useless lumber' or 'dead letter' is not a harmonised construction. To harmonise is not to destroy.

Even though in Section 245D(4) or in section 245D(6) , the terminus points for charging interest have not been specifically provided, they have to be charged in the spirit of Sections 234A , 234B and 234C . The interests charged under Sections 245D(2C) and 245D(6A) are for different types of defaults and are not really relatable to Sections 234A , 234B and 234C .

There is another way of looking at the issue. Section 243B(3) provides differently for regular assessment and re-assessment. In a re-assessment, ordinarily income assessed is more than what was determined originally. If two different periods are provided to meet such a situation, it is inconceivable that legislature intended to totally give a go by to interest on the income which for the first time is disclosed before the <ORG>. By analogy and harmony, the period has to be till the date of <ORG>'s order.

To put it differently, the interests charged in terms of Sections 234A , B and C become payable on the income already disclosed in the returns filed, together with the income disclosed before the <ORG>. The concerned interest as aforesaid shall be on the consolidated amount of income, i.e. both disclosed and undisclosed. As indicated above, such interests shall be charged till the <ORG> acts in terms of Section 245D . Thereafter, the prescription relating to charging of interests etc. becomes operative, after the <ORG> allows the application for settlement to be proceeded with. In such event, there is no further charge of interest in terms of Sections 234A , B and C. The interest charged in terms of Section 245D is a separate levy and not in terms of interest chargeable under Sections 234A , B and C. Therefore, the apprehension that there is scope for charging of interest on interest is without any basis.

To sum up, the inevitable conclusion is that interest has to be charged for the period beginning from the first day of April next following the relevant financial year up to the date of <ORG>'s order at the rate applicable, on interest chargeable under Section 234B , when an order under Section 2454(D)(4) is passed, followed by quantification under Section 245(D)(6) The appeals are allowed to the extent indicated above.