CASE NO.: Appeal (civil) 4503 of 2001 PETITIONER: <ORG>, B.S. CITY, BOKARO RESPONDENT: <ORG> B.S. CITY, BOKARO DATE OF JUDGMENT: 25/07/2001 BENCH: G.B. PATTANAIK & <NAME> JUDGMENT:

JUDGMENT 2001 (3) SCR 1190 The Judgment of the Court was delivered by <NAME>, <NAME> <NAME> granted.

The appeal pertains to the issue of interference of <ORG> under Section 30 and 33 of the repealed Arbitration Act , 1940. Undisputably, in the contextual facts, the award in question is a non-speaking award of a former Judge of the High <ORG> at Patna who acted as an Umpire on appointment by the <ORG>. The award was made a rule of court by a judgment dated.29.4.1995 rejecting the petition under Sections 30 and 33 of the Act of 1940. The High <ORG> in appeal however set aside the award recording therein that the award is Otherwise invalid in terms of clause (a) of Section 30 of the Act of 1940 and hence the petition for special leave to appeal to this <ORG>.

Section 30 of the Act of 1940 was rather restrictive in its operation and the use of the expression "shall" in the main body of the Section made it mandatory to the Court that the award of an Arbitrator shall not be set aside excepting for the reasons as mentioned therein namely :

(a) Arbitrator or Umpire has misconducted himself;

(b) The award has been made or passed after the supersession of the Arbitration or the proceedings becoming invalid;

(c) Award has been improperly procured or otherwise invalid.

These three specific provisions thus can only be taken recourse to in the matter of setting aside of award and the law is so well settled on this score, that we also do not feel it expedient to dilate on the issue excepting recording that since the parties chose their own arbitrators to adjudicate the disputes between them, the parties cannot object to such an adjudication or decision either upon the law or on the facts except however as envisaged in terms of Section 30 of the Act of 1940, since repealed and as noticed above.

Needless to record that there exists a long catena of cases through which the law seems to be rather well settled that the re-appraisal of evidence by the <ORG> is not permissible. This <ORG> in one of its latest decisions ( <CITATION> ,  9 SCC 449 upon consideration of decisioni in <CITATION> ., AIR (1923) PC 66, 1923 AC 480); <CITATION> furniture (P)Ltd, AIR (1967) SC 1032,  1 SCR324; . <CITATION> ,  1 SCC 289; Ms. Sudarsan Trading Co: v. Government of Kerala and Anr.,  2 SCC 38 and <CITATION> ..  6 SCC 485 as also in <CITATION> .,  5 SCC 651 has stated that re-appraisal of evidence by the <ORG> is not permissible and as a. matter of fact, exercise of power to re-appraise the evidence is unknown to a proceeding under Section 30 of the Arbitration Act. This <ORG> in <ORG> (supra) categorically stated that in the event of there being no reason in the award, question of interference of the <ORG> would not arise at all. In the event however, there are reasons, interference would still be not available unless of vourse, there exist a total perversity in the award or the judgment is based on a wrong proposition of law; This <ORG> went on to record that in the event however, two views are possible on question of law, the court would not be justified in interfering with the award of the Arbitrator if the view taken recourse to is a possible view. The observations of Lord <NAME> in <NAME> (supra) stands accepted and adopted by this <ORG> in <ORG> (supra) to the effect that the <ORG> had no jurisdiction to investigate into the merits of the case or to examine the documentary and oral evidence in the record for the purposes of finding out whether or nor the Arbitrator has committed an error of law. The <ORG> as a matter of fact, cannot substitute its own evaluation and come to the conclusion that the Arbitrator had acted contrary to the bargain between the parties.

Be it noted that the award of a Arbitrator is ordinarily final and conclusive unless a contra intention is disclosed in the agreement itself. This Court in <ORG> v. AL. Railiaram, [1964] 3 SCR 164 stated that right or wrong the decision of the Arbitrator is binding excepting in the case of error of law on the face of it or in the event the award itself or in a document actually incorporated in it, there is found some legal proposition which stands out to be the basis of the award and which is erroneous. <NAME> 's decision expressly records that the civil courts cannot exercise apparent power over the decision of an arbitrator, wrong or right irrespective (excepting however the situation noticed above).

In <NAME> U.S. and others v.<ORG>., [1964] 5 SCR 480 it has also been laid down that it is not open to court to speculates where no reasons are given by the Arbitrator as to what impelled the Arbitrator to arrive at his conclusion and it is not open to the court to attempt to assess the mental process by which the Arbitrator has reached his conclusion where it is not disclosed by the terms of the award. Law thus seems to be well-settled on the score of exercise of jurisdiction of law courts as regards interference with an award of Arbitrator or <ORG> as the case may be.

Turning attention on to the factual matrix of the matter in issue, the records depict that by reason of certain disputes, the appellant herein invoked the arbitration clause and appointed an Arbitrator together with a request calling upon the respondent herein to appoint its Arbitrator. The two Arbitrators entered into the reference arid disagreed as a result of which the same was referred to the umpire but the umpire gave an ex-parte award to the tune of Rs. 2,76,000. The defendant, respondent herein challenged the award before <ORG> which was set aside being ex parte and the matter was remitted back to the <ORG> who, however, resigned because of his ill health and subsequently, on the request of the parties, <ORG> by an order dated 7.8.1992 in Misc Case No 5 of 1991 appointed an <ORG> in place and stead of the earlier <ORG>. The record further depicts that the <ORG> on 25.4.1994 did pass the award which inter alia records the following:

"I, therefore, do hereby award and determine that the respondents shall pay to the claimants a sum of Rs. 2,44,000 (Rs, two lakh forty four thousand only)".

Subsequently, the factual score depicts that steps were taken before <ORG> for the award to be made to be a rule of court and the learned Subordinate Judge, 1st at chas, Bokaro by an order dated 29.4.95 made the award a rule of court in the following terms.

"that the objection petition dated 3.6.94 is hereby rejected and the Award is hereby made a rule of the court on contest with cost. Further it is also ordered that me plaintiff/claimant is also entitled for three categories of interest i.e. for pre-reference period starting from 6.9.85 to 23.9.87, pendente lite interest starting from 24.9.87 to 29.4.95 and future till actual payment is made against the principal sum of Rs 2,44,000 at the rate of prevailing in <ORG> from time to time."

On appeal however, <ORG> set aside the award being an 'otherwise invalid' award in terms of Section 30(e) of the Act of 1940. In paragraph 11 of the judgment impugned before this Court, <ORG> stated as below:

"On a thoughtful consideration of the matter, I reach the conclusion that it was not possible for the umpire in the given situation to award any amount at all to the plaintiff. On the other hand, the defendant was undoubtedly entitled to a sum of Rs. 71,400 by way of risk purchase differential, because the plaintiff mspite of repeated extensions had filed to deliver the goods compelling the defendant to purchase the materials at a higher price from elsewhere. Learned counsel for the appellant is, therefore, right in his submission that the impugned award amounts to putting a premium on dishonesty, and rewards the plaintiff who is responsible for repeated breaches of the contract for malafide reasons. I am, therefore; unable to uphold the award, and is fit to be Set aside, being an '',.,.otherwise invalid" award in terms of Section 30(a) of the Act."

By reason of the above this Special Leave Petition has been filed wherein notices have been issued and the appeal is disposed of upon leave being granted as above, Mr. <NAME>, learned counsel appearing in support of the Appeal rather strongly contended that <ORG> in an appeal from the order of the 1st Subordinate Judge. <NAME> in making the award, the rule of court ought not to have interfered with the same, neither High Court had any authority of jurisdiction to deal with the matter as it has been so done. It is on this score that appellant herein placed strong reliance on the decision of this Court <NAME> 's case (supra). The respondent on the other hand with however equal vehemence and zest contended upon reliance on the judgment of this Court in State of Andhra Pradesh and <NAME> v, R. V, Rayamin & <NAME>, [1990] 1 SCC 433 that in the matter of challenging the award there are often two very distinct and separate grounds-one being an error apparent on the face of the award and the other is that the Arbitrator has exceeded his jurisdiction : whereas in the former the court can look into the agreement and upon consideration of the agreement, the award can be set aside and in the latter, the award can be set aside on the ground that the Arbitrator has exceeded his jurisdiction and the evidence starting on the face of the award will be admitted in order to establish whether the jurisdiction had been exceeded or not since the nature of the dispute is something which has to be determined whatever might be said about it in the award by the Arbitrator, The entire submission of the respondent is based upon the judgment in <NAME> (supra). Unfortunately, however, the judgment of this Court <NAME> (supra) has been misread and not appreciated. In no uncertain terms <NAME>. <NAME> stated that only in a speaking award the court can look into the reasoning of the award and it is not open to the court to probe the mental process of the Arbitrator and speculate, where no reasons are given by the Arbitrator, as to what impelled the arbitrator to arrive at his conclusion (vide paragraph 6 of the judgment at page 437 of the Report).

Next in the line of decisions relied upon by the respondent is a recent one of this <ORG> in the case of <CITATION> : & Anr,,  3 SCC 762. Relevance of the decision on the merits of the matter in the instant appeal would be dealt with immediately hereinafter but before so doingj it would be convenient to note the observations of this <ORG> in paragraph 6 (at page 764 of the Report) wherein it has been categorically stated that the <ORG> was concerned with clause (a) of Section 30 of the Arbitration Act which empowers the courts to set aside an award on the ground that an arbitrator or umpire has misconducted himself or the proceedings-this observation of the <ORG> itself takes put the relevancy of the decision in the matter since presently we are concerned with clause (c) of Section 30 of the Arbitration Act to wit: 'otherwise invalid', This is however, apart from what is noticed hereinbelow as detailed submissions have been made relying upon the judgment of this court. The recording of facts by mis <ORG> in paragraphs 11, 12 and 13 stand out singularly singular distinguishing feature between V.G. George and the appeal under consideration before this <ORG> presently. For convenience sake, the above noted paragraphs are set out hereinbelow.

"11 .Coming to the present appeal we find that in the impugned award the arbitrator has stated the case of the parties, the issues framed by him, his findings on each issue and the amount awarded. We may also state here that in the counter-affidavit dated 23.5.1983 Filed by the present appellant before the teamed Sub-Judge it had been clearly stated that the contract is evidenced by three integrated documents namely (i) tender dated 3.5.1979, (ii) work order dated 15:5.1979 and (iii) agreement dated 24.3.1979.

12. Out of the claims under 10 heads the arbitrator awarded amount under Claims 3 and 9 of the appellant. Out of 51 issues framed by the arbitrator. Issues 15 to 18 were in respect of Claim 3 and Issues 31 to 37 were in respect of Claim 9. We quote below Issues 15 to 18 in respect of Claim 3.

"15. Whether six acres alone out of the mining area covered by the tender form were available for mining on account of obstruction of Kudikidappukars, ex-workers of <ORG> and the local public as alleged by the claimant in para 14 of the State of Claim?

16. Whether it was the respondent's duty to see that the entire extent of mining area detailed in the tender form was available for mining and that the mining could be carried out without hindrance and the respondent failed to discharge its duty? OR Whether it was the claimant's responsibility to settle all problems and objections which arose in the course of mining work?

17. Whether the claimant's suffered loss as mentioned in para 14 of the State of Claim?

18, Whether the respondent is liable to make good the loss mentioned in Issue 17 and if so, to what extent?"

13v In respect of the above issues the arbitrator has given his findings which are as follows:

"'15. The allegation that six acres of land alone out of the mining area covered by the tender form was available for mining is not correct. In 243 acres of land covered by the tender form put of which 92 acres belonged to the respondent, more than necessary area sufficient to mine and supply the contract quantity of 2,00,000 to 2,20,000 MT of raw sand was actually available for mining, but, on some days in April and except on one day, during the whole month of May 1980, mining of raw sand even in the available area and supply of raw sand from mere were not possible, on some days partially and on other days wholly, on account of obstruction by kudikidappukars and the local public.

16. Claimant's right under the contract was purely personal, it did not amount to an interest in the 243 acres of land covered by the contract and he could not sue strangers in his own name in respect of that land, it was his responsibility to settle all problems and objections which arose in the course of the mining work between him and his mining workers, but not with strangers like kudikidappukars and the local public who claimed either rights in the land or rights and privileges against the respondent, and it was the respondent's duty to see that the entire extent of mining area detailed in the tender form was available or mining and mining operations could be carried on there quietly and without hindrance, and whenever complaint regarding obstruction was received the respondent tried to discharge that duty by appealing to public authorities for help, but without success.

17-18, Claimant suffered loss to the extent of Rs. 2,81,461,26 and the respondent is liable to make good that loss."

The factual narration of V.G, <NAME> 's decision (supra) as above makes it evident and thus distinguishable from the factual element of the present appeal .and we need not dilate thereon in any farther detail suffice it to record that the decision in V.G. <NAME> does not have any manner of application both by reason of the observations of this <ORG> in paragraph 6 of the Report as noticed above, as also by reason of distinguishable factual feature, as such the decision does not lend any support to the respondent herein.

Similar is the situation pertaining to a decision of this Court in <CITATION> ..  4 SCC 93. The decision is clearly distinguishable since the <ORG> made a speaking award with reference to claims and gave reasonings for awarding those claims. The fact situation in <ORG> depicts that Arbitrator has not only acted arbitrarily and irrationally but he has, in fact, (<ORG> in the decision) abdicated the agreement and went much beyond the scope of the agreement. This travelling outside the bounds of the contract has led this Court to come to a conclusion that the arbitrator has acted without jurisdiction. Incidentally, this Court in paragraph 24 recorded the state of law as below:

"...-.......But if he has remained inside the parameters of the contract arid has construed the provisions of the contract, bis award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it"

The exposition of law thus in <ORG> (supra) is in no way different and as a matter of fact travels alongwith the decision noticed hereinbefore in this judgment and not de hors the same.

The Arbitrator or <ORG> as the case may be, has no authority or jurisdiction to abdicate the terms of the contract or what the parties desired under the contract and not beyond the same. As a matter of fact in <ORG> (supra) the <ORG> has, as regards the claim, directed payment of a sum of Rs, 4.25 (Rupees four and paise twenty-five) per sq. metre of napa slab lining towards escalation in the cost of napa slabs and there was, in fact, no provision in the contract allowing escalation for napa slabs and it is on this score, this Court came down heavily upon the authority of the arbitrator to direct payment of escalation charges when the agreement does not provide for the same. The decision thus in <ORG> (supra) also is of no assistance to the respondents herein.

Presently in the contextual facts, there is no evidence on record that the umpire has overstepped his jurisdiction or has travelled beyond the agreement and it is in this perspective that the court ought not to have entertained the objection and set aside the award as passed by the chosen forum of the parties. <ORG> thus was in manifest error in entertaining the appeal and setting aside the awards. The order as passed by <ORG> cannot be sustained and the law being well settled on the score should not have been misread and misapplied by <ORG>.

The appeal is allowed. The order of the 1st Sub-Divisional Judge. <NAME> stands restored. There shall however be no order as to costs.


PETITIONER: COMMISSIONER OF INCOME TAX, CALCUTTA Vs. RESPONDENT:

<ORG>.

DATE OF JUDGMENT13/12/1990 BENCH:

<NAME>, <NAME>:

<NAME>, <NAME>, M.M.

CITATION:

1991 AIR 1338 1990 SCR Supl. (3) 525 1992 SCC Supl. (1) 55 JT 1990 (4) 694 1990 SCALE (2)1261 ACT:

Income Tax Act 1961: Section 145- -Valuation of stock--Principle to be followed--Cost or market value--Whichever is lower-Assessing officer--Whether enti- tled to add over head charges.

Method of accounting--Consistent practice--To disclose true picture of profits and gains--Assessing Officer--Enti- tled to and has duty to adopt appropriate computation to determine true income.

HEADNOTE:

The respondent-assessee a limited liability company engaged in the business of manufacture and sale of paints, had a consistent practice to value its goods in process and finished products exclusively at cost of raw materials and totally excluding overhead expenditure. The justification for this practice, the assessee contended was that the goods being paints had limited storage life and if not quickly disposed of were liable to lose their market value. The Income Tax Officer rejected the aforesaid contention of the assessee observing that at no time had the assessee claimed any deduction on account of deterioration or damage to goods and that there was no justification to recognise a practice as claimed by the assessee of valuing its stock otherwise that in accordance with the well recognised prin- ciple of accounting which require the stock to be valued at either cost (raw material plus expenditure) or market value whichever was lower. Recalculating the value of the opening and closing stocks by adding the overhead expenditure, the Income-tax Officer made an addition of Rs.1,04,417 for the assessment year 1963-64, and allowed a deduction of Rs.3338 for the assessment year 1964-65. These orders were confirmed by the Appellate Assistant Commissioner. On appeal, <ORG> held that there was no evidence to show that the goods in stock dete- riorated in value and that there was no justification for excluding the overhead expenditure in valuing the stock; and if it was in the interest of the business to value stock solely with reference to cost of raw materials and without including the overhead expenditure, such valuation was not appro-

<NAME>

priate to the computation of income chargeable under the Income Tax Act .

<ORG>, in a reference at the instance of the <ORG> noticed that though there was no evidence of dete- rioration of the goods in stock, came to the conclusion that having regard to the consistent practice of the assessee, the <ORG> was not justified in rejecting the assessee's method of valuation of its stock-in-trade. It accordingly reversed the <ORG>s decision.

In the appeals by the <ORG> to this Court, it was contended on behalf of the assessee that for a number of years the <ORG> did not question the method of accounting regularly employed by the assessee, that it was during the assessment years in question that the objection was raised for the first time on the ground that overhead expenditure was not included in the value of the stock, that the Assess- ing Officer had exceeded his jurisdiction by adding the overhead expenditure to the cost of raw material, especially because of the short durability of paint and that the As- sessing Officer has not appreciated that the method adopted by the assessee is a well recognised method among account- ants of repute.

Allowing the appeals and setting aside, the judgment of <ORG>, this <ORG>, HELD: 1. The Income Tax Act does not contain any specif- ic provision for the valuation of stock, Income, profits and gains must, however, be computed in the manner provided by the Act. It is the duty of the Officer to determine the profits and gains of a commercial adventure according to the correct principle of accounting. In doing so, he might, dependent on the nature of the business and its special character, allow certain adjustments, but his primary pur- pose and duty is to deduce the correct income, profits and gains, and this he cannot do without taking into account the value of the stock-in-trade at the beginning and at the end of the year and by ascertaining the difference between them. [537G- <CITATION> ,  73 I.T.R. SC 735, referred to.

2. The object of stock valuation is the correct determi- nation of the profits and loss resulting from a year's trading. [538B]  <CITATION> ,,  12 Tax Cases 813, 827; Chainrup Sampatram v. Commis- sioner of IncomeTax, West Bengal,  24 I.T.R. 481,485- 486; <CITATION> .,  25 I.T.R. 377, 395; Russell v. <ORG>,  13 App. Cas. 418, 424; 4 TLR. 500 and <CITATION> .,  A.C. 85; (1956) I.T.R. 84, 99, referred to.

3. Section 145 of the Income Tax Act, 1961 confers sufficient power upon the officer-nay it imposes a duty upon him-to make such computation in such manner as he determines for deducing the correct profits and gains. This means that where accounts are prepared without disclosing the real cost of the stock-in-trade, albeit on sound expert advise in the interest of efficient administration of the company, it is the duty of the Income Tax Officer to determine the taxable income by making such computation as he thinks fit. [539E]

4. Even if the assessee had adopted a regular system of accounting, it was the duty of the Assessing Officer under section 145 of the Income Tax Act 1861, to consider whether the correct profits and gains could be deduced from the accounts so maintained. If he was of the opinion that the correct profits could not be deduced from the accounts, he was obliged to have recourse of the proviso to section 145 of the Income Tax Act 1961. [536C, <CITATION> .,  6 ITR 36; <CITATION> .,  53 I.T.R. 122, 128 and 132; <CITATION> .,  33 I.T.R. 182; <CITATION> ,  38 I.T.R. 579, 588 and Commissioners of Inland Revenue v. <ORG>,  29 Tax Cases 387, 392, referred to.

5. Any system of accounting which excludes, for the valuation of the stock-in-trade, all costs other than the cost of raw material for the goods in process and finished products, is likely to result in a distorted picture of the true state of the business for the purpose of computing the chargeable income. Such a system may produce a comparatively lower valuation of the opening stock and the closing stock, thus showing a comparatively low difference between the two. In a period of rising turnover and rising prices, the system adopted by the assessee, as found by the <ORG>, is apt to diminish the assessment of the taxable profit of a year. The profit of one year is 'likely to be shifted to another year which is an incorrect method of computing profits and gains for the purpose of assessment. [539F-G]

6. Each year being a self-contained unit, and the taxes of a particular year being payable with reference to the income of that year, as computed in terms of the Act, the method adopted by the assessee has been found to be such that the income cannot properly be deduced therefrom. It is, therefore, not only the right but the duty of the Assessing Officer to act in exercise of his statutory power, for determining what, in his opinion, is the correct taxable income. [539H-540A]

7. The question to be determined by the Assessing Offi- cer in exercise of his power under section 145 is whether or not income can properly be deduced from the accounts main- tained by the assessee, even if the accounts are correct and complete to the satisfaction of the Officer and the income has been computed in accordance with the method regularly employed by the assessee. What is to be determined by the Officer is a question of fact i.e. whether or not income chargeable under the Act can properly be deduced from the books of account, and he must decide the question with reference to the relevant material and in accordance with the correct principles. [531D-F]

8. It is a well recognised principle of commercial accounting to enter in the profit and loss account the value of the stock-in-trade at the beginning and at the end of the accounting year at cost or market price, whichever is the lower. [533G- <CITATION> ,  12 Tax Cases, 813,823 referred to. (9) Where the market value has fallen before the date of valuation and at that date the market value of the article is less than its actual cost, the assessee is entitled to value the articles at market value and thus anticipate the loss which he will probably incur at the time of the sale of goods. Valuation of the stock-in-trade at cost or market value, whichever is the lower, is a matter entirely within the discretion of the assessee, but whichever method he adopts, it should disclose a true picture of his profits and gains. If, on the other hand, he adopts a system which does not disclose the true state of affairs for the determination of tax, even if it is ideally suited for other purposes of his business, such as the creation of a reserve, declaration of dividends, planning and the like, it is the duty of the Assessing Officer to adopt any such computation as he deems appropriate for proper determi- nation of the true income of the assessee. [534E-F] This is not only a right, but a duty that is placed on the Officer, in terms of the first proviso to section 145 which concerns a correct and complete account, but which in the opinion of the Officer does not disclose a true and proper income. [534G] B.S.C. Footwear v. <NAME> (Inspector of Taxes),  2 W .L.R. 1313, referred to.

(10) It is not only the right, but the duty of the Assessing Officer to consider whether or not the books disclose the true state of accounts and the correct income can be deducted therefrom. It is incorrect to say, as con- tended on behalf of the assessee, that the Officer is bound to accept the system of accounting regularly employed by the assessee the correctness of which had not been questioned in the past. There is no estoppel in these matters, and the Officer is not bound by the method followed in the earlier years. [535G] (11) What is the profit of a trade or business is a question of fact and it must be ascertained, as all facts must be ascertained, with reference to the relevant evi- dence, and not on doctrine or theories. [539C] JUDGMENT:


PETITIONER: STATE OF U. P. Vs. RESPONDENT: <NAME>. DATE OF JUDGMENT: 20/09/1957 BENCH: <NAME>, BHUVNESHWAR P. BENCH: <NAME>, BHUVNESHWAR P. DAS, <NAME>, T.L. VENKATARAMA KAPUR, J.L. SARKAR, A.K. CITATION: 1957 AIR 912 1958 SCR 533 ACT: <ORG> servant-Disciplinary Proceedings-Enquiry Show- cause notice under Art. 31l(2) of the Constitution-Consulta- tion of Public Service <ORG>--Whethcr mandatory-Consti- tution of India, Arts. 311(2), 320(3) (c). HEADNOTE: The respondent was an employee under the appellant, the State of Uttar Pradesh, and as it was discovered that he had allowed his private interests to come in conflict with his public duties, a departmental inquiry was held wherein charges were framed against him. He was called upon to submit his written statement of defence and given an oppor- tunity to adduce evidence in support of it. After consider- ing the report of the enquiry, in which the charges were found to be true, the appellant called upon the respondent, under Art. 311(2) of the Constitution of India, to show cause why he should not be demoted and compulsorily retired, and the respondent submitted a written explanation setting out his defence and objecting to the procedure 534 adopted at the inquiry. Subsequently, the respondent was given a copy of the report and again called upon to show cause why the proposed penalty of reduction in rank should not be imposed upon him, and he once again submitted a written explanation. In the meantime <ORG> was consulted by the <ORG> as to the punishment proposed to be imposed, and for this purpose it was supplied with all the relevant material up to the date of the second show-cause notice. The <ORG> finally by an order dated September 12, 1953, inter alia, reduced the rank of the respondent with effect from August 2, 1952, and thereupon, the respondent filed petitions under Art. 226 of the Constitution before <ORG> challenging the legality of the <ORG> order. <ORG> found that though <ORG> was consulted by the <ORG> it was not supplied with the written explana- tion submitted by the respondent in answer to the second show-cause notice, and held that the order of the <ORG> was invalid for the reason that the provisions of Art. 320(3)(c) of the Constitution had not been fully complied with. On appeal to <ORG> additional evidence was sought to be adduced on behalf of the appellant to show that as a matter of fact <ORG> was consulted even after the submission of the respondent's explanation in answer to the second show-cause notice, but it was found that there was sufficient opportunity for the appellant to place all the relevant materials before <ORG> itself : Held, (1) that the additional evidence ought not to be admitted and that the finding of <ORG> that there was no consultation with the <ORG> after the respondent had submitted his explanation in answer to the second show- cause notice, must stand. It is well-settled that additional evidence should not be permitted at the appellate stage in order to enable one of the parties to remove lacunae in presenting its case at the proper stage, and to fill in gaps. Of course, the position is different where the appellate court itself requires certain evidence to be adduced in order to enable it to do justice between the parties. (2) that the provisions of Art. 320(3)(c) of the Constitu- tion of India are not mandatory and that they do not confer any rights on a public servant so that the absence of con- sultation or any irregularity in consultation does not afford him a cause of action in a court of law. <CITATION> , (1955) 1 S.C.R. 1011, considered. <NAME> v. The King Emperor, (1945) F.C.R. 99, relied on. (3) that Art. 311 of the Constitution is not controlled by the provisions of Art. 320. 535 JUDGMENT:

CIVIL APPPELATE JURISDICTION : Civil Appeals Nos. 27 and 28 of 1955.

Appeals from the judgment and order dated the 8th January, 1954, of <ORG> in Civil Misc. Writ No. 817 of 1953.

<NAME> and <NAME>, for the appellant in C. A. No. 27 and respondent in C. A. No. 28.

N. C. Sen, for the respondent in C. A. No. 27 and appel- lant in C. A. No. 28.

1957. September 20. The following Judgment of the Court was delivered by SINHEA J.-These two cross-appeals on certificates granted by <ORG> under Art. 132 (1) of the Constitution, arise out of a common judgment and order of <ORG> of <ORG> of Judicature at Allahabad, in two writ petitions Nos. 121 and 817 of 1953, dated January 8,1954, allowing, in part and dismissing in part, the two petitions under Art. 226 of the Constitution, by which the petitioner questioned the validity of the orders passed by the Govern- ment of Uttar Pradesh, reducing him in rank, and ordering his compulsory retirement from service. Civil Appeal No. 27 has been preferred by the State of Uttar Pradesh and Civil Appeal No. 28 by the petitioner in the Court below. For the sake of brevity, we shall refer to the State of Uttar Pra- desh as the appellant and the petitioner in <ORG>

<NAME>-as the respondent, in the course of this judgment which covers both the appeals. It is necessary to state the following facts : In 1920, the respondent was employed in the education department of the State of Uttar Pradesh, and in due course, was promoted to <ORG> (Junior Scale). This took place in 1946. In the year 1948, the respondent was appointed an officer-on-special duty and managing editor of a quarterly journal issued by the education department, under the style " Shiksha ". While holding the post of officer-on-special-duty, the respondent was also appointed a member of <ORG>. He continued to function as such until 1951. The respondent's conduct as a member of that <ORG> was not found to be satisfactory and above board, inasmuch as it was discovered that he had allowed his private interests to come in con- flict with his public duties. He was found to have shown favours in the selection of books on approved list, in respect of certain books said to have been written by a nephew of his, aged only 14 years, and by another relation of his, as also to a firm of publishers who had advanced certain sums of money to him on interest. In July, 1952, the respondent was transferred as Headmaster of a certain <ORG>, but he did not join his post and went on leave on medical grounds. While on leave, the respondent was suspended from service with effect from August 2, 1952. In September, the same year, the Director of Education issued orders, framing charges against the respondent and calling upon him to submit his written statement of defence and giving him an opportunity to call evidence in support of it. It is not necessary for the purposes of this case, to set out the charges framed against him except to state that the details of the books said to have been written by his prodi- gy nephew and his other relation, were given, the gravamen of the charges being that. he did not inform the <ORG> of his relationship with the alleged authors of the books, the selection of which was calculated to brine, pecuniary benefit to those relations. Another charge related to his having benefited a certain firm of publishers whose books, about a dozen in number, had been selected by the <ORG> of which he was a member. The respondent submitted a lengthy written statement in his defence and did not insist on oral examination of witnesses, but enclosed with his explanation certain affidavits in support of his case. The Director of Education, after a thorough inquiry into the charges framed against the respondent, submitted a report to the effect that the charges framed against him had been substantially proved. He, recommended that the respondent be demoted to the subordinate <ORG> and be compulsorily retired. After con- sidering the report aforesaid, the <ORG> decided on November 7, 1952, to call upon the respondent, under Art. 311(2) of the Constitution, to show cause why the punishment suggested in the departmental inquiry report should not be imposed upon him. In pursuance of the sbow-cause-notice served upon the respondent on November 13, 1952, he put in a long written explanation on November 26, 1952, on the same lines as his written statement of defence submitted earlier as aforesaid, bearing on the merits of the findings as also objecting to the procedure adopted at the inquiry. He also showed cause against the proposed punishment. A <ORG> notification dated January 9, 1953, was published showing the names of the officers of the education department, who would retire in due course on superannuation, that is to say, at the age of 55, and the corresponding dates of super- annuation. The respondent is shown therein as one of those, and in the last column meant for showing the dates of re- tirement, September 15, 1953, is mentioned as against his name. On February 2, 1953, the respondent filed the first petition (Writ Petition No. 121 of 1953) challenging the validity of the order of the <ORG> suspending him and calling upon him to show cause why he should not be reduced in rank with effect from the date of suspension, and also compulsorily retired. In that petition, he also challenged the legality of the entire proceedings and prayed for a writ of mandamus directing the <ORG> to pay his full salary during the period of suspension until he attained the age of superannuation as aforesaid. PerhapRr realising that the show-cause-notice served upon the respondent as aforesaid, in November, 1952, would not fully satisfy the requirements of a reasonable opportunity as contemplated by the Constitu- tion, the Director of Education forwarded to the respondent, along with a covering letter dated June 16, 1953, a copy of the report of the inquiry; and again called upon him to show cause why the proposed penalty of reduction in rank be not imposed upon him. <ORG> (which we shall refer to as the Commis- sion) was also consulted by the <ORG> as to the punish- ment proposed to be imposed as a result of the inquiry. Presumably, the <ORG> was supplied with all the rele- vant material upto the date of the second show-cause notice. The <ORG> was consulted but it appears from the find- ings of <ORG> that the respondent's written expla- nation submitted on July 3,1953, was not before the Commis- sion. The explanation submitted on July 3, 1953, was a much more elaborate one dealing not only with the three charges which had been made against him, but also with other irrele- vant findings of the inquiry officer who had made several observations against the respondent's efficiency and con- duct, which were not the subject-matter of the several heads of charge framed against the respondent, and, therefore, not called for. After considering the opinion of the Commis- sion, the inquiry report and the several explanations sub- mitted by the respondent, the State <ORG> passed its final order dated September 12, 1953, reducing the respond- ent in rank from the U. P. <ORG> (Junior Scale) to Subordinate <ORG>, with effect from August 2, 1952, and compulsorily retiring him. The order of compulso- ry retirement was more or less superfluous as the respondent would have retired in the ordinary course with effect from September 15, 1953, as already indicated. During the pend- ency of the first writ petition, and after it had been heard by <ORG> in part, the respondent filed the second writ application (being Writ Petition No. 817 of 1953) on September 23, 1953, practically covering the same grounds and praying for the same reliefs as aforesaid. <ORG> of <ORG>, presided over by the Chief Justice, by its judgment and order dated January 8, 1954, disposed of both the writ petitions holding that the orders impugned were invalid for the reason that the provisions of Art. 320(3) (c) of the Constitution had not been fully complied with because the last written explanation of the respondent submitted on July 3, 1953, had not been placed before the <ORG>.

<ORG>, therefore, quashed the orders of the Govern- ment reducing him in rank and reducing his emoluments with effect from the date of suspension as aforesaid. It did not pass any order in respect of the compulsorys retirement because that had happened in due course before the judgment of <ORG>. The appellant has filed appeal No. 27 from this part of the judgment and order of <ORG>. <ORG> refused the respondent's prayer in respect of the full salary for the period of suspension during which he had been deprived of it by the orders of the <ORG> impugned by him. From this part of the judgment, the re- spondent has preferred appeal No. 28. It is manifest that if the State <ORG>'s appeal is well-founded and is allowed by this <ORG>, the respondent's appeal must fail without any further consideration.

Before dealing with the merits of the controversy raised in these appeals, it is necessary to state that Mr. <NAME> appearing on behalf of the appellant, proposed to place before this <ORG>, at the time of the argument, the original records and certain affidavits to show that, that as a matter of fact, all the relevant facts relating to consulta- tion between <ORG> and the <ORG> had not been placed before the High <ORG> and that if the additional evidence were taken at this stage, he would satisf'y this <ORG> that the <ORG> was consulted even after the submission of the respondent's explanation in answer to the second show-cause-notice. Without looking into the addi- tional evidence proposed to be placed before us, we indicat- ed that we would not permit additional evidence to be placed at this stage when there was sufficient opportunity for <ORG> to place all the relevant matters before the High <ORG> itself. We could not see any special reasons why additional. evidence should be allowed to be adduced in this <ORG>. It was not suggested that all that matter which was proposed to be placed before this <ORG> was not avail- able to <ORG> during the time that the High <ORG> considered the writ petitions on two occasions,  It is well-settled that additional evidence should not be permitted at the appellate stage in order to enable one of the parties to remove certain lacunae in presenting its case at the proper stage, and to fill in gaps. Of course, the position is different where the appellate court itself requires certain evidence to be adduced in order to enable it to do justice between the parties. In this case, there- fore, we have proceeded on the assumption that though the <ORG> was consulted as to the guilt or otherwise of the respondent and the action proposed to be taken aginst him after he had submitted his explanation in answer to the first show-cause-notice, there was no consultation with the <ORG> after the respondent had submitted his more elaborate explanation in answer to the second show-cause- notice.

Hence, the main question in controversy in appeal No. 27 of 1955 is whether <ORG> was right in taking the view that Art. 311 was subject to the provisions of Art. 320(3)(c) of the Constitution, which were mandatory, and, as such, non-compliance with those provisions in the instant case was fatal to the proceedings ending with the order passed by the Government on September 12, 1953. <ORG> started with the assumption that the provi- sions aforesaid of the Constitution are mandatory and on that assumption proceeded to consider the further question whether non-compliance with those provisions by <ORG> conferred any right on the respondent to question the validity of the order impugned in this case. In this connection, <ORG> found that the <ORG> had been consulted some time in June, 1953. It has to be as- sumed as aforesaid, that the <ORG> had not before it the more elaborate explanation submitted in writing by the respondent on July 3, in answer to the second show-cause- notice. <ORG> was further of the opinion that it may be that if that explanation had been placed before the <ORG>, its advice to <ORG> may not have been in the same terms in which it actually gave its advice, and after considering which, along with other relevant matters, <ORG> passed the order now in question. We shall assume for the purposes of this case that there was an irregularity in, though not complete absence of, consultation with the <ORG>. Now the question is: Did this irregularity afford a cause of action to the respondent to challenge the final order passed by <ORG> on September 12, 1953 ? That part of the order which related to compulsory retirement may easily be passed over, because, in any case, three days litter, on September 15, the respondent retired in due course. Hence, the operative portion of the final order of the Government, which adversely affected the respondent, was the order reducing him in rank from the Provincial to the Subordinate grade. That order appears to have satisfied the conditions laid down in Art. 311 of the Constitution. At no stage of the controversy has it been suggested that, so far as the appellant was concerned, the respondent had not a " reasona- ble opportunity of showing cause against the action proposed to be taken in regard to him "; that is to say, it is now beyond question that the proceedings taken by the appellant, including the departmental inquiry against the respondent ending with his reduction in rank, satisfied the mandatory provisions of Chapter I of Part XIV of the Constitution, with particular reference to Art. 31 1. That conclusion would put an end to the respondent's case, unless it is held that the provisions of Art. 320(3)(c) are of a mandatory character and are in the nature of a rider to Art. 31 1. This question does not appear to have been determined by this <ORG> in the form in which it has been now raised before us. In the case of <CITATION> (1), the question of consultation with the State Public Service <ORG> was raised in slightly different circumstances. After the Government had before it the result of the inquiry into the conduct of the public servant, and after the punishment was tenta. tively arrived at, the <ORG> was consulted and it agreed to the pro- posed action. But this consultation (I)  I S.C.R. 1011.

and agreement was before the public servant was asked to show cause against the action proposed to be taken against him. His complaint was that the <ORG> should have been consulted after he had moved the <ORG> for reviewing its previous order, and this Court ruled that it was not incumbent on the <ORG> to consult the <ORG> as many times as he might choose to move the <ORG> by way of review. In that case, this Court did not discuss and pronounce upon the alleged mandatory character of Art. 320 of the Constitution. Hence, it may be taken that we have to determine this controversy for the first time, though, according to the strict construction of the words of Art. 320(3)(c ), an application for review would be covered by the words memorials or petitions ".

Article 320(3)(c) is in these terms 320(3):" <ORG> or <ORG>, as the case may be, shall be consulted-

(a).........................................................

(b).........................................................

(c) on all disciplinary matters affecting a person serving under <ORG> or <ORG> in a civil capacity, including memorials or petitions relat- ing to such matters; ".

Article 320 does not come under Chapter I headed <ORG> " of Part XIV. It occurs in Chapter 11 of that part headed " Public Service <ORG>s." Articles 320 and 323 lay down the several duties of <ORG>. Article 321 envisages such " additional functions " as may be pro- vided for by <ORG> or <ORG>. Articles 320 and 323 begin with the words "It shall be the duty and then proceed to prescribe the various duties and functions of the <ORG> or <ORG>, such as to conduct examinations for appointments; to assist in framing and operating schemes of joint recruitment; and of being consulted on all matters relating to methods of re- cruitment or principles in making appointments to <ORG> and on all disciplinary matters affecting a civil servant. Perhaps, because of the use of the word " shall " in several parts of Art. 320 , <ORG> was led to assume that the provisions of Art. 320(3)(c) were manda- tory, but, in our opinion, there are several cogent reasons for holding to the contrary. In the first place, the provi- so to Art. 320 , itself, contemplates that the President or the Governor, as the case may be, "may make regulations specifying the matters in which either generally, or in any particular class of case or in particular circumstances, it shall not be necessary for <ORG> to be consulted." The words quoted above give a clear indication of the intention of the Constitution makers that they did envisage certain cases or classes of cases in which the Com. mission need not be consulted. If the provisions of Art. 320 were of a mandatory character, the Constitution would not have left it to the discretion of the Head of <ORG> to undo those provisions by making regula- tions to the contrary. If it had been intended by the makers of the Constitution that consultation with the Com- mission should be mandatory, the proviso would not have been there, or, at any rate, in the terms in which it stands. That does not amount to saying that it is open to <ORG> completely to ignore the existence of the <ORG> or to pick and choose cases in which it may or may not be consulted. Once, relevant regulations have been made, they are meant to be followed in letter and in spirit and it goes without saying that consultation with the Com- mission on all disciplinary matters affecting a public servant has been specifically provided for, in order, first, to give an assurance to the <ORG> that a wholly independ- ent body, not directly concerned with the making of orders adversely affecting public servants, has considered the action proposed to be taken against a particular public servant, with an open mind; and, secondly, to afford the <ORG> unbiassed advice and opinion on matters vitally affecting the morale of public services. It is, therefore, incumbent upon the Executive <ORG>, when it proposes to take any disciplinary action against a public servant, to consult the <ORG> as to whether the action proposed to be taken was justified and was not in excess of the requirements of the situation. Secondly, it is clear that the requirement of the consulta- tion with the <ORG> does not extend to making the advice of the <ORG> on those matter,,;, binding on the <ORG>. Of course, the <ORG>, when it consults the <ORG> on matters like these, does it, not by way of a mere formality, but, with a view to getting proper assist- ance in assessing the guilt or otherwise of the person proceeded against and of the suitability and adequacy of the penalty proposed to be imposed. If the opinion of the <ORG> were binding on the <ORG>, it may have been argued with greater force that non-compliance with the rule for consultation would have been-fatal to the validity of the order proposed to be passed against a public servant. In the absence of such a binding character, it is difficult to see how non-compliance with the provisions of Art. 320(3)(c) could have the effect of nullifying the final order passed by the <ORG>.

Thirdly, Art. 320 or the other articles in Chapter II of Part XIV of the Constitution deal with the constitution of the <ORG> and appointment and removal of the Chairman or other members of the <ORG> and their terms of serv- ice as also their duties and functions. Chapter II deals with the relation between <ORG> and the <ORG> but not between the <ORG> and a public servant. Chapter II containing Art. 320 does not, in terms, confer any rights or privileges on an individual public servant nor any constitu- tional guarantee of the nature contained in Chapter I of that Part, particularly Art. 31 1.  Article 31 1 , therefore, is not, in anyway, controlled by the provisions of Chapter II of Part XIV, with particular reference to Art. 320. The question may be looked at from another point of view. Does the Constitution provide for the contingency as to what is to happen in the event of non-compliance with the re- quirements of Art. 320(3)(c) ? It does not, either in ex- press terms or by implication, provide that the result of such a non- compliance is to invalidate the proceedings ending with the final order of the <ORG>. This aspect of the relevant provisions of Part XIV of the Constitution, has a direct bearing on the question whether Art. 320 is mandatory. The question whether a certain provision in a statute imposing a duty on a public body or authority was mandatory or only directory, arose before their Lordships of <ORG> in the case of <ORG> v. <NAME> (I). In that case the question mooted was whether the omission to revise the jury lists as directed by the statute had the effect of nullify- ing the verdict given by a jury. Their Lordships held that the irregularities in the due revision of the jury 'Lists will not ipso facto avoid the verdict of a jury. The <ORG> made the following observations in the course of their judgment:

".. ............ The question whether provisions in a statute are directory or imperative has very frequently arisen in this country, but it has been said that no general rule can be laid down, and that in every case the object of the statute must be looked at. The cases on the subject will be found collected in Maxwell on Statutes, 5th ed., p. 596 and following pages. When the provisions of a statute relate to the performance of a public duty and the case is such that to hold null and void acts done in neglect of this duty would work serious general inconvenience, or injustice to persons who have no control over those entrusted with the duty, and at the same time would not promote the main object of the <ORG>, it has been the practice to hold such provisions to be directory only, the neglect of them, though punishable, not affecting the validity of the acts done." The principle laid down in this case was adopted by <ORG> in the case of <NAME> v. <NAME> (2). In that case, <ORG> had to consid- er the effect of non-compliance with the provisions of s. 256 of the Government of India Act, 1935, requiring consul- tation between public authorities

(r) L.R. [1917] A.C. 70.

(2) [1945] F.C.R. 99.

before the conferment of magisterial powers or of enhanced magisterial powers, etc. The <ORG> repelled the contention that the provisions of s. 256, aforesaid, were mandatory. It was further held that noncompliance with that section would not render the appointment otherwise regularly and validly made, invalid or inoperative. That decision is particularly important as the words of the section then before their Lordships of the Federal <ORG> were very em- phatic and of a prohibitory character.

An examination of the terms of Art. 320 shows that the word " shall " appears in almost every paragraph and every clause or sub-clause of that article. If it were held that the provisions of Art. 320(3)(c) are mandatory in terms. the other clauses or sub-clauses of that article will have to be equally held to be mandatory. If they are so held, any appointments made to the public services of the <ORG> or a <ORG>, without observing strictly the terms of these sub- clauses in cl. (3) of Art. 320 , would adversely affect the person so appointed to a -public service, without any fault on his part and without his having any say in the matter. This result could not have been contemplated by the makers of the Constitution. Hence, the use of the word " shall " in a statute, though generally taken in a mandatory sense, does -not necessarily mean that in every case it shall have that effect, that is to say, that unless the words of the statute are punctiliously followed, the proceeding, or the outcome of the proceeding, would be invalid. On the other hand, it is not always correct to say that where the word " may " has been used, the statute is only permissive or directory in the sense that non-compliance with those provi- sions will not render the proceeding invalid. In that connection, the following quotation from <NAME> on 'Statu- tory Construction'- art. 261 at p. 516, is pertinent: " The question as to whether a statute is mandatory or directory depends upon the intent of the legislature and not upon the language in Which the intent is clothed. The meaning and intention of the legislature must govern, and these are to be ascertained, not only from the phraseology of the provision but also by considering its nature, its design, and the consequences which would follow from construing it the one way or the other..........."

We have already indicated that Art. 320(3)(c) of the Consti- tution does not confer any rights on a public servant so that the absence of consultation or any irregularity in consultation, should not afford him a cause of action in a court of law, or entitle him to relief under the special powers of <ORG> under Art. 226 of the Constitution or of this Court under Art. 32. It is not a right which could be recognized and enforced by a writ. On the other hand, Art. 311 of the Constitution has been construed as confer- ring a right on a civil servant of the <ORG> or a <ORG>, which he can enforce in a court of law. Hence, if the provisions of Art. 311 , have been complied with in this case and it has not been contended at any stage that they had not been complied with-he has no remedy against any irregularity that the <ORG> Government may have committed. Unless, it can be held, and we are not prepared to hold, that Art. 320(3)(c) is in the nature of a rider or proviso to Art. 31 1 , it is not possible to construe Art. 320(3)(c) in the sense of affording a cause of action to a public servant against whom some action has been taken by his employer.

In view of these considerations, it must be held that the provisions of Art. 320(3)(c) are not mandatory and that non- compliance with those provisions does not afford a cause of action to the respondent in a court of law. It is not for this <ORG> further to consider what other remedy, if any, the respondent has. Appeal No. 27 is, therefore, allowed and appeal No. 28 dismissed. In view of the fact that the appellant did not strictly comply with the terms of Art. 320(3)(c) of the Constitution, we direct that each party bear its own costs throughout.

Appeal No. 27 allowed.

Appeal No. 28 dismissed.


JUDGMENT <NAME>

1. This is a consolidated reference under sub-section (1) of section 66 of the Indian Income-tax Act (hereinafter referred to as the Act) for the three assessment years 1950-51, 1951-52 and 1952-53, corresponding accounting years being financial years ending with 3Ist March, 1950, 31st March, 1951, and 31st March, 1952. During these assessment years, the assessee derived income from various sources including his business of exhibiting pictures in a theatre known as "<ORG>."

2. Some time in the year 1947 the assessee thought of opening a cinema theatre in the City of Bombay. It appears that one <NAME> had entered into an agreement with <ORG> to take on lease certain lands at Marine Lines, Bombay, including composite plot No. 41/42 on Queen's Road Estate. On January 6, 1947, the assessee obtained a licence from <NAME> in respect of this plot to enter upon this land and erect thereon buildings, cinema theatre, show rooms, shops, business premises and residential quarters. The rental agreed to be paid was Rs. 4,200 per month. <NAME> had further agreed that he would give a sub-lease to the assessee for the term of 999 years as and when he would get a regular lease from the Government, and it appears that on 4th October, 1949, <NAME> gave a sub-lease to the assessee of the said plot at a rental of Rs 4,200 per month. The building programme, however, was carried on after the licence to enter on the land had been obtained by the assessee from <NAME>. It appears that for the purpose of erection of the theatre and starting the cinema business, the assessee had requested <NAME> to help and assist him in getting prepared suitable plans and designs for the cinema theatre and other buildings, in obtaining permission from the Bombay Municipality for constructing an addition sixth floor, in procuring the required finance to enable the assessee to complete the construction of a modern theatre and other buildings, in procuring various priorities and permits for scarce materials including cement, steel and petrol for transport, in securing import licences for various goods for the purpose of the cinema theatre, in securing foreign exchange facilities to enable the assessee to import from abroad the various goods required for the purpose of the theatre and other buildings. The assessee had also requested <NAME> to advise him from time to time during the course of construction of the Cinema theatre and buildings, and also enter into negotiations with <ORG> to get the adjoining roads widened. <NAME> responded to these requests made by the assessee and had rendered him assistance in the aforesaid matters. On 4th of June, 1948, an agreement was arrived at between <NAME> and the assessee under which in consideration of the aforesaid services and assistance rendered by <NAME>, the assessee agreed to give to <NAME> for a period of 20 years 2% of the gross annual income earned by him in his cinema business. The other terms agreed to between the parties are as mentioned in annexure "A" to the statement of case. It is not necessary to refer to all of them but it may be mentioned that it was agreed that the payment of 2% of the gross annual income would only be made in the years profits are made. In the year when there was no profit, that year would not be counted towards the 20 years period mentioned in the agreement. Further it was agreed that as security for the due performance and observance of the terms of the agreement, the assessee should within six months of the date of the agreement deposit with <NAME> a sum of Rs. 50,000 and it was further agreed that the burden of the aforesaid payment on the assessee was to attach and run with the said cinema theatre known as <ORG> in whosoever hands the said cinema theatre shall be for running cinema shows. Paragraph 3 of the agreement deals with certain financial arrangements between the said <NAME> and the assessee in the event the assessee makes an arrangements with any purchaser or distributor of cinema films, the assessee reserving to himself certain guaranteed minimum income. Paragraph 4 provides that if the assessee was to let out the said cinema theatre to any other party or person or sell the said cinema theatre to any other person, the assessee shall makes it a condition with the lessee or the purchaser of the said cinema theatre that the said lessee or the purchaser shall pay to the said <NAME> every year up to the said period of 20 years the payments specified in the agreement. Paragraph 5 provides :

"Subject to what is stated in clause (4) above the party of the first part (assessee) shall not assign, transfer, sell or let out the said cinema theatre during the currency of the contract provided however that if the party of the first part shall pay to the second part (<NAME>) a lump sum computed at the rate of Rs. 1,250 per month for the then unexpired period of the said period of twenty years plus ten per cent. on such aggregate lump sum then only the party of the first part shall be at liberty to assign, transfer, sell or let out the said cinema theatre free from all claims of the party of the second part under this Agreement and the same shall stand terminated on such payment as aforesaid."

3. The theatre and the building were completed before 1st April, 1949, and the assessee started his business on 1st April, 1949. The assessee desired certain variations in the matter of exercising the option given to him by the aforesaid clause (5) of the agreement made on June 4, 1948, and, therefore, on 15th March, 1950, he addressed a letter to <NAME>, the material part of which is in the following terms :

"As I desire to leave my affairs as clear as possible for my son, may I request you to consider whether you would not allow the operation of this clause of capital payment exactly as it is stated to be, to take place not merely in the event of sale of <ORG>, but also otherwise at may option any time within the next twelve months."

4. By his letter dated 17th March, 1950, <NAME> informed the assessee as follows :

"I am agreeable if you wish to buy out for a capital sum the annual payment involved in the agreement under the circumstances other than the sale of <ORG>."

5. The said capital sum was subsequently determined at Rs. 3,30,000 in accordance with paragraph 5 of the agreement of 4th June, 1948. This new agreement is evidenced by a deed dated 10th July, 1950. It is annexure "B" to the statement of case. Briefly stated, under this agreement, it was agreed between <NAME> and the assessee that in full satisfaction of payment of 2 per cent. of the annual gross income as provided in the agreement of 4th June, 1948, for a period of 20 years of profit, the assessee should pay to <NAME> a sum of Rs. 3,30,000 within a period of five years by twenty quarterly instalments of Rs. 16,500 commencing from the expiry of the period of three months from the date of the agreement. By way of security for the payment of the said sum of Rs. 3,30,000 the assessee created a second mortgage in favour of <NAME> on certain properties mentioned in the agreement. The assessee's system of accounting is mercantile. The assessee has debited the said sum of Rs. 3,30,000 to the cinema building account as royalty payable by him to <NAME> as per the original agreement dated 4th June, 1948, subsequently replaced by an agreement dated 10th July, 1950. The entry is in the books of account of the year ending with 31st March, 1950. The controversy between the parties relates to the said sum of Rs. 3,30,000. It is the contention of the assessee that the said sum should be included in the original cost of the depreciable assets to the assessee for the purpose of determining the depreciation allowance allowable to the assessee for the assessment year 1950-51 under clause (vi) of sub-section (2) of section 10 of the Act. On the other hand, it is the contention of the department that the said sum does not form part of the original cost of the depreciable assets to the assessee. The Income-tax Officer did not accept the contention of the assessee. According to him, the amount agreed to be paid by the assessee to <NAME> would clearly be an expenditure of a preliminary nature incurred for establishing the business of <ORG> and not for the purpose of acquiring buildings, machinery, etc., for the cinema business. The assessee took three appeals for the said three assessment years against the orders of the Income-tax Officer to the Appellate Assistant Commissioner. He took the view that a part of the said amount of Rs. 3,30,000 pertains to the cost of residential property and the land on which the buildings stand and a part pertains to the cost of the depreciable assets. He allocated the payments on an estimate basis as under : Rs. 66,000 he allocated on account of the payment of services obtained for the setting up of the business; Rs. 33,000 he allocated as payment made for services obtained for improvement of the land and the balance of Rs. 2,31,000 he allocated as payments made for and in connection with the acquisition of (i) cinema theatre building, (ii) residential building, (iii) exhibition machinery, and (iv) air conditioning machinery. In this view of the matter he allowed the appeal partially and remanded the case to the Income-tax Officer directing him to modify the assessment in the light of the observation made by him in his order. Against this order, the income-tax authorities took further appeals to <ORG>. These three appeals were consolidated and were disposed of by a common order by the <ORG>. It appears that two contentions were raised by the department before the <ORG>. Firstly, that the Appellate Assistant Commissioner erred in holding that the sum of Rs. 2,31,000 out of Rs. 3,30,000 said to have been paid to Shri <NAME> in accordance with the agreement dated July 10, 1950, be allocated to certain depreciable assets mentioned therein for the purpose of computing the depreciation allowance and, secondly, it was contended that as the liability to pay the lump sum amount of Rs. 3,30,000 arose on 10th of July, 1950, as per the agreement of the said date, the said amount or any part thereof, could not be taken into consideration in determining the cost of the depreciable assets for period prior to the 10th of July, 1950, and, therefore, no part of the said sum could be taken into account in determining the depreciation allowance allowable to the assessee in the assessment year 1950-51. The <ORG> accepted the first contention of the department and has allowed the appeals, set aside the order of the Appellate Assistant Commissioner and restored that of the Income-tax Officer. The <ORG> in its order has not dealt with the second contention raised by the income-tax department. It is not necessary to state the reasons given by the <ORG> as Mr. <NAME>, counsel for the revenue, has not adopted the line of reasoning of the <ORG>. We will deal with the contentions raised by Mr. <NAME> in due course. On an application made by the assessee under sub-section (1) of section 66 of the Act, the <ORG> has drawn up a statement of a case and referred to this court the following question of law :

"Whether the appropriate part of Rs. 2,31,000 (i.e., after excluding that portion of it that is attributable to residential building) apportioned by the Appellate Assistant Commissioner to cinema theatre building, exhibiting machinery and air conditioning machinery on proportionate basis can be considered for the purpose of section 10(5)(a) as part of the 'actual cost to the assessee' in acquiring those assets in the previous year ended March 31, 1950, relevant for the assessment year 1950-51 ?"

6. In our opinion the question as framed by the <ORG> would not properly bring out the question of law arising out of its order. It has to be noted that the <ORG> has expressed no opinion as to whether, in the event any part of Rs. 3,30,000 is liable to be taken into account in determining the actual cost to the assessee, the proper sum would be Rs. 2,31,000. Similarly, it also has expressed no opinion as to whether in the event any part is so liable to be included it could not be included for the assessment year 1950-51. For these reasons, we reframe the question in the following terms to bring out the controversy between the parties arising out of the order of the <ORG> :

"Whether any part of the amount of Rs. 3,30,000 is attributable towards the actual cost of the assessee for acquiring the depreciable assets for running his cinema business and, therefore, liable to be included in determining the depreciation allowance allowable under section 10(2)(vi) read with section 10(5) of the Act ?"

7. Mr. <NAME>, appearing for the assessee, contends that the <ORG> was in error in holding that no part of the said sum of Rs 3,30,000 was attributable towards the cost of the acquisition of depreciable assets. <NAME> has rendered very valuable services to the assessee in securing the sanction of the municipality for the buildings, in obtaining licences and permits for the assessee, for getting scarce materials like cement, machinery from abroad, etc. He had also rendered valuable service to the assessee in securing foreign exchange to pay the cost of machinery, which is being utilised in the business and the sum attributable towards such services properly pertain to the cost of these assets. In the business world such services have to be availed of for the purpose of business.

8. Mr. <NAME>, on the other hand, raised three contentions. Firstly, according to him, on a true construction of the first agreement, the payment of 2% gross annual income agreed to be paid by the assessee to <NAME> for a period of 20 years of profit is nothing but a remuneration for services rendered by <NAME> to the assessee for the purpose of setting up a business. No part of that amount, therefore, is attributable towards the acquisition of the depreciable assets. In the second instance, it is his contention that even if a part thereof is so attributable, no liability in that respect arose prior to the commencement of the business, nor any liability in that respect has been ascertained before the first year ended and, therefore, no part of the said sum of Rs. 3,30,000 can be included in the original cost to the assessee in the acquisition of the depreciable assets. According to him the original cost was the cost incurred by the assessee before the business commenced and the sum so determined cannot be altered save and except to correct a mistake or when capital expenditure is incurred during the year for additions, alterations, improvements or expansions. In support of his contention, he referred us to certain rules farmed under proviso (a) to section 10(2)(vi) . Lastly, he contended that at any rate the consideration of the second agreement is not to remunerate <NAME> for the services rendered by him but is to get the assessee free the fetters imposed on him by paragraphs 4 and 5 of the agreement of 4th June, 1948, and, therefore, no portion of the said amount of Rs. 3,30,000 can form part of the cost of acquisition of the assets.

9. Before we proceed to deal with the contentions raised by counsel for the parties, it will be convenient to consider the relevant provisions of section 10 . Omitting the part not material for the purpose of this case, the said provisions read :

"10. (1) Business. - The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him.

(2) Such profits or gains shall be computed after making the following allowances, namely :-.....

(vi) in respect of depreciation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent.... to such percentage on the written down value thereof as may in any case or class or cases be prescribed....

Provided that -

(a) the prescribed particulars have been duly furnished.....

(5) In sub-section (2).....'written down value' means -

(a) in the case of assets acquired in the previous year, the actual cost to the assessee......

(b) in the case of assets acquired before the previous year the actual cost to the assessee less all depreciation actually allowed to him under this Act, or any Act repealed thereby, or under executive orders issued when the Indian Income-tax Act , 1886 (II of 1886), was in force."

10. These provisions indicate that in the computation of the tax payable by an assessee under the head "Profits and gains" of the business, profession vocation, the assessee is entitled to certain deductions, by way of certain allowances and one of the allowances is depreciation allowance in respect of buildings, machinery, plant and furniture, which is the property of the assessee and which he has used for the purpose of his business during the assessment year. The allowance allowable is at a certain prescribed percentage on the written down value. The method for computation of the written down value is two-fold as provided in clauses (a) and (b) of sub-section (5) of section 10 of the Act. In determining the written down value of the assets acquired in the previous year, it is the actual cost to the assessee and in the case of the assets acquired before the previous year the actual cost less the depreciation actually allowed. "Actual cost", however, is not defined in the Act. The ordinary dictionary meaning of the word "actual" is "existing in fact or fact as opposed to imaginary or past state of things". The dictionary meaning of the word "cost" is "what is laid out or suffered to obtain anything." Depreciation allowance as understood in the commercial world is deduction from profits, which a businessman ordinarily makes with a view to making good the capital investment, which, spooner or later, will have to be replaced on account of the wear and tear of the assets during the course of the business. In our opinion, therefore, the meaning of the expression "actual cost to the assessee" as used in sub-section (5) of section 10 of the Act would be what the assessee his, in fact, expended or laid out for the purpose of acquiring the depreciable assets. It is in the light of the view we have taken of the expression "actual cost to the assessee" that the agreement of date 4th June, 1948, will have to be scrutinised to ascertain whether any of the services rendered by <NAME> would reasonably be attributable towards the cost of the depreciable assets.

11. The services, help and assistance rendered by <NAME> to the assessee in erecting an up-to-date cinema theatre with air-conditioning arrangements therein and other buildings for residential and business purposes on a suitable site in Bombay have been detailed in paragraph 1 of the said agreement and the consideration for his help, assistance and service rendered, is the agreed payment of 2% of the gross profits for a period of 20 years. The services, help and assistance rendered are detailed in paragraph 1 as under :

"At the request of the party of the First Part (the assessee), the party of the Second Part (<NAME>) has rendered to the party of the First Part valuable and material help, assistance and services prior to the construction and throughout the construction of the said cinema theatre and other buildings in the manner following, that is to say :

"(a) For getting prepared suitable plans and designs for the said cinema theatre and other buildings, construction of which was started by the party of the first part on the said plot of land described in the Schedule hereto and for suggesting and making amendments in the said plans and designs.

(b) In obtaining permission from the Bombay Municipality for constructing an additional sixth floor on a portion of the said premises for the purposes of a minuet theatre.

(c) In procuring the required finance to enable the party of the First Part to complete on the said plot of land a modern cinema theatre and other buildings with air-conditioning arrangements.

(d) For procuring various priorities and permits for scarce materials including cement, steel, piping and petrol for transport.

(e) To overcome various difficulties in connection with cinema licence by making representations to <ORG> and <ORG> authorities.

(f) In securing import licences for various good for the purpose of the said cinema theatre and other buildings.

(g) For securing foreign exchange facilities to enable the party of the First Part to import from abroad various goods required for the purposes of the said cinema theatre and other buildings.

(h) By way of valuable advices and suggestions during the course of construction of the said cinema theatre and other buildings and by contacting various public authorities on behalf of the party of the First Part.

(i) In helping in diverse ways to push on vigorously the said building works and in visiting the said building works during the course of construction frequently.

(j) For entertaining negotiations with the Bombay Municipality for the widening of Marine Lines and Hospital Lane and making the said Hospital Lane into a two way street."

12. It is not disputed before us, and the Income-tax Officer as well as the <ORG> have found, that these services have been rendered by <NAME> to the assessee. The question that has to be decided is whether the aforesaid services or any of them are of the nature required for setting up the business and whether they or any of them are attributable to the acquisition of the depreciable assets. It is clear that the services mentioned in clauses(b),(c),(e) and(j) cannot be said to be in any manner connected with the acquisition of the depreciable assets. Services mentioned in clauses(h) and (i) also mentioned in such vague terms that it is hardly possible to say that they have any relevance in the acquisition of the depreciable assets. In our opinion, however, portion of the services mentioned in clauses(a),(d),(f) and(g) could be referable as services rendered for the acquisition of the depreciable assets. It is not in dispute that the expenditure incurred in getting prepared suitable plans and designs for the construction of the cinema theatre; for construction of a minuet theatre; for securing various priorities and permits for scarce materials including cement, steel, piping and petrol for transport; in securing import licences for various goods for the purpose of the cinema theatre and for securing foreign exchange facilities to enable the assessee to import from abroad various goods required for the purpose of the said cinema theatre, are liable to be included in the cost of the depreciable assets to the assessee. <NAME> has rendered assistance to the assessee in these matters. The genuineness of the agreement remunerating <NAME> for rendering help in these and other matters has not been challenged and there is nothing to hold that the remuneration paid to <NAME> was not a legitimate remuneration. In these circumstances we see no reason why a portion of the remuneration that is attributable to the help, assistance and services rendered by <NAME> in the acquisition of the depreciable assets should not be included in the cost of the depreciable assets.

13. In our opinion, therefore, it would be necessary to ascertain what portion out of Rs. 3,30,000 could reasonably be attributable to portions of the services mentioned in claues (a), (d), (f) and (g), which are attributable to the acquisition of depreciable assets, which, as already stated, are buildings, plant, machinery and furniture used by the assessee for the purpose of the cinema business. That portion, in our view, is liable to be included in the cost of these depreciable assets to the assessee and this brings us to the second contention raised by Mr. <NAME>.

14. As already stated, it is his argument that the remuneration payable to <NAME> fixed under the agreement of June 4, 1948, is 2% of the gross annual income from the business for a period of 20 years. It is, therefore, clear that no remuneration could possibly accrue to <NAME> before the end of the year in which the business commenced. Mr. <NAME> contends that the cost of the depreciable assets are the costs incurred by the assessee at the commencement if the first year of business : to that amount nothing can be added and nothing can be taken out from that amount save and except where a correction of a mistake is required to be made or where some additions are made. In support Mr. <NAME> has referred us to proviso (a) to clause (vi) of sub-section (2) of section 10 which provides that, to entitle an assessee to claim depreciation allowance, he has to furnish particulars in the prescribed form. The prescribed form is part of rule 19 of the Rules framed under the Act. Emphasis is laid by Mr. <NAME> in support of his argument on the first three columns of the prescribed form. It would, therefore, be convenient to reproduce these columns :

"DEPRECIATION Statement of particulars prescribed under proviso (a) of section 10 (2(vi) of the Income-tax Act , 1922, and of the amount of depreciation allowable.

1 2 3

Description of Written down value as at Capital expend- buildings, the beginning of the iture during the machinery, plant accounting period. year for additions or furniture. alterations, improvements & extensions." ------------------------------------------------------------------------ 15. According to Mr. <NAME>, "written down value" in column (2) is the expenditure incurred by the assessee in acquiring the depreciable assets at the time of the commencement of the business, and according to him column (3) shows that to that amount the assessee can claim to add only the capital expenditure incurred by him in making any additions, alterations, improvements and extensions during the assessment year.

16. It is not possible to read in column (2) that the written down value mentioned therein restricted only to the expenditure incurred by the assessee before the commencement of the business in acquiring the assets. The heading of the column itself does not say so, but on the other hand, it says "written down value as at the beginning of the accounting period". We have already referred to the definition of "written down value" contained in clauses (a) and (b) of sub-section (5) of section 10 of the Act, and that definition would show that the written down value of the assets acquired during the previous year is the actual cost to the assessee and in the case of assets acquired before the previous year, the actual cost to the assessee less the depreciation actually allowed. It would thus appear that what the written down value is has to be determined in each year in the light of the two definitions contained in clauses (a) and (b) of sub-section (5) of section 10 . It has been held in <CITATION> - tax that the written down value determined in a year does not operate as res judicata nor is it conclusive in determining the written down value of the subsequent years. This decision has been approved by <ORG> in <CITATION> and at page 357, after referring to the decision, it has been observed :

"It was held that neither the principle of res judicata nor estoppel nor the terms of section 10(2)(vi) of the Act prevented <ORG> from determining for himself what the actual cost of the machinery had been and that depreciation had to be calculated for every year and it was open to Income-tax Officer not merely to perform 'a mathematical operation on the basis if the written down values of the previous year, but one of determining the written down value himself'.

The limit to which the Income-tax Officer can go back does not stop at the written down value of the previous year but extends up to the figure of the original cost, and the method enjoined by section 10(5)(b) is not that the Income-tax Officer should merely scale down the written down value of the previous year but that he should take into consideration the actual cost, determining it for himself, if necessary, take also into consideration the allowances granted in the past and then make his own computation as to the written down value for the assessment year with which he is concerned."

17. It is clear from the aforesaid observations of their Lordships that it is open to the Income-tax Officer to determine afresh for himself the original cost of the depreciable assets in the assessment of each year. Mr. <NAME>, however, tried to distinguish these cases on the ground that these cases related to a correction of a mistake in the matter of determination of the original cost at the commencement of the business, and, therefore, the observations would have application only to such cases where the Income-tax Officer is required to amend or correct the amount of the original cost determined at the commencement of the year on the ground of a mistake. We are unable to read any such limitation in the rule laid down by their Lordships in the aforesaid observations. Further, in our view, to so construe the provisions might lead to unforeseen results where the capital assets are acquired by a businessman not at an agreed price but on a certain percentage basis of the returns of the business. Such cases would not be inconceivable. A decision in <ORG>, Canada v. <NAME> may come very near it. In that case the assessee entered into an agreement with an oil company by which she sold to the company 20 acres of her land. In consideration of the sale the company agreed to pay her a certain sum of money in cash on the execution of the agreement, to issue to her a certain number of fully paid shares in the company and to deliver to her order a "royalty" of 10 per cent. of all the oil produced from the said lands. The question arose whether the amount paid to her by way of royalty was income or part payment of the instalments of the price of the land sold by her and it was held by their Lordships of <ORG> that the share of the oil reserved to the assessee was not a "royalty" in the ordinary sense familiar in the case of mining leases, but was in effect payment by instalments of part of the price of the price of the lands which she had sold to the company. It was, therefore, not income but a capital receipt and the amount paid to the assessee was not taxable in her hands. Mr. <NAME> argued that, in business, instances could be found, where newly patented machinery is purchased by businessmen, to avoid risk on a certain percentage of profits that may be made in the business. Such a deal is mutually advantageous. Businessman pays nothing for the machinery if the business fails. Manufacturer of untried machinery, who is sure of the merits of his production, reaps a harvest when business proves a success. We may frankly say we have not come across such a deal but, as deal but as already said, such a deal is not inconceivable.

18. If Mr. <NAME>'s contention is accepted, in cases where depreciable assets are purchased not at a fixed price but on percentage basis of gross returns of the business, the assessee would not be entitled to claim any depreciation at all in any year because the price payable would get determined at the end of the year or years and naturally, therefore, would not be an amount expended or a liability incurred for a certain amount by an assessee at the commencement of the year for acquisition of the assets. Had that been the intention of the legislature, it would have so said clearly by adding "as incurred by him before the commencement of the business" after "actual cost to the assessee" in sub-section (5) of section 10 . In our opinion, therefore, a portion of the sum of Rs. 3,30,000 attributable towards the acquisition of the depreciable assets as would be hereafter determined should be included in the actual cost of these assets to the assessee in the year or years of account at the commencement of which the liability to pay it or part thereof had accrued or would accrue.

19. It has next to be seen whether by reason of execution of another agreement, the liability of the assessee under the original agreement of 4th June, 1948, had ceased and altogether a new agreement had taken place between the parties. The contention of Mr. <NAME> is that the consideration of the second agreement is to obtain release from the fetters contained in paragraphs 4 and 5 of the agreement of June 4, 1948, and, therefore, liability undertaken cannot form part of cost of the acquisition of the assets.

20. In our opinion, on a proper construction of the agreement of 10th July, 1950, the consideration of the second agreement is to get the assessee released from the burden of payment of 2 per cent. gross annual income for a period of 20 years. The following portion of paragraph 20 of the agreement of 10th July, 1950, makes this position clear :

"AND WHEREAS the Mortgagor (assessee) has requested the Mortgagee (Manu Subedar) to release the Mortgagor from the burden created under the said Agreement dated the 4th day of June, 1948, and to terminate the same on receiving from the Mortgagor a sum of Rupees three lakhs thirty thousand, being the capital value of the said Agreement for the yearly payments payable to the Mortgagee under the said Agreement dated the 4th June, 1948, for a period of 20 years, which the mortgagor would pay to the Mortgagee within a period of five years from the date hereof as hereinafter mentioned and in the meantime to accept from the Mortgagor a Second Mortgage of the Mortgagor's said properties described in Schedules "A" and "B" hereunder written subject to the said prior Mortgages."

Later it has been recited :

"AND THIS INDENTURE ALSO WITNESSETH that in pursuance of the said Agreement and for the consideration aforesaid the hereinbefore recited Agreement dated the 4th day of June, 1948, and made between the Mortgagor of the one part and the Mortgagee of the other part has been terminated from the date hereof and all the liability of the Mortgagor under the same has ceased from the date of these presents."

21. It is clear that the consideration for the second agreement is the termination of the first agreement and not merely to get the assessee released from the fetters created in terms of paragraphs 4 and 5 of the first agreement. In other words, the remuneration agreed to be paid by the assessee to <NAME> for the services rendered by him under the first agreement stands substituted by the sum mentioned in the second Agreement. A part thereof as is attributable to services rendered for the acquisition of the depreciable assets will, therefore, have to be allowed to the assessee as a sum to be included in the original cost of acquisition of the depreciable assets. In what year and what sum, or any part or parts thereof, should be allowed is a matter for the <ORG> to decide. It may be stated that Mr. <NAME> contended before us that the entire amount, which would be determined, should be included in the original cost for the assessment year 1950-51, because the liability to pay it accrued prior to 31st March, 1950, and, therefore, it has to be taken into account in that year; while, on the other hand, it is the contention of Mr. <NAME> that the agreement is of 10th July, 1950, much after the expiry of the previous year, it was payable in instalments and, therefore, the amount, if any, ascertained, cannot be included in the assessment year 1950-51. This aspect of the question has not been gone into by the <ORG> and, therefore, in our opinion, we would not be justified in proceeding to decide the question.

22. For the reasons stated above, our answer to the question as framed by us is in the affirmative. Such part of the sum of Rs. 3,30,000 as is determined by the <ORG> to be attributable to the actual cost in the acquisition of the depreciable assets of the cinema business would be included either in whole or in part in such year as the <ORG> would determine.

23. The Commissioner shall pay the costs of the assessee in this reference.

24. Question answered in the affirmative.