JUDGMENT <NAME>, J.

1. <ORG>, Cochin Bench, has referred the following four questions under Section 256(1) of the Income-tax Act, 1961 ("the Act"), in Income-tax References Nos. 472 to 474 of 1982, out of which two are at the instance of the <ORG> and two at the instance of the assessee :

At the instance of the <ORG> (assessment years 1975-76 and 1976-

"1. Whether, on the facts and in the circumstances of the case and on an interpretation of Section 13(1)(c)(ii) of the Income-tax Act and also in view of the finding that 'the property of the charitable trust had been used and applied for the benefit of persons referred to in Sub-section (3) of Section 13 during the relevant previous year' the assessee is entitled to exemption ?

Assessment year 1975-76 :

2. Whether, on the facts and in the circumstances of the case and also in view of the finding by the <ORG>, that 'the Commissioner of Income-tax considered that the order of the Income-tax Officer allowing exemption under Section 11 erroneous on the sole ground that by the delayed withdrawal of profits the assessee contravened the provisions of Section 13(1)(c)(ii) ', the <ORG> is right in not considering the issue under Section 13(1)(c)(ii) of the Income-tax Act, 1961 ?

At the instance of the assessee (assessment year 1976-77) :

3. Whether, on the facts and in the circumstances of the case, the <ORG> is justified in law in holding that the assessee has forfeited the exemption from tax on its entire income on contravention of Section 13(1)(c)(ii) and Section 13(2)(h) read with Section 13(3) for the assessment year 1976-77 ?

4. Whether the <ORG> is right in holding that, in the instant case, due to the contribution of capital by the trust, the funds of the trust was invested in a concern and that such investment exceeded five per cent. of the capital of that concern and that the income arose to the trust or such investment so as to attract Section 13(3) and (4) ?"

2. In Income-tax Reference No. 482 of 1982, the following questions have been referred at the instance of the <ORG> :

"1. Whether, on the facts and in the circumstances of the case and on an interpretation of Section 13(1)(c)(ii) of the Income-tax Act, the assessee is entitled to the exemption ?

2. Whether, on the facts and in the circumstances of the case, the <ORG> is right in not considering the issue under Section 13(1)(c)(ii) of the Income-tax Act, 1961 ?

3. Whether, on the facts and in the circumstances of the case, the delayed withdrawal of profits from the firm would not amount to 'investment' ?"

3. We shall briefly state the facts leading to these references.

4. The assessees in these cases are two different trusts, Income-tax References Nos. 472 to 474 of 1982 being concerned with <ORG> and Income-tax Reference No. 482 of 1982 with <ORG>. The references relate to the assessment years 1975-76 and 1976-77.

5. <ORG> (hereinafter referred to as "the trust") is a public charitable trust, created on March 15, 1972. A firm, <ORG>, was constituted on April 1, 1972, with the trust as one of its three partners, the other two partners being close relatives of the authors of the trust, who fell within the purview of Sub-section (3) of Section 13 of the Act. The capital of the firm was Rs. 30,000, of which the trust contributed Rs. 5,000. The firm earned substantial profits during the accounting years 1974-75 and 1975-76. The share of the trust in the profits of the firm for these two years was Rs. 1,49,782 and Rs. 94,365, respectively, as determined after audit. The trust withdrew its share of the profits for the accounting year 1974-75 in two instalments of Rs. 35,000 and Rs. 1,14,782 on July 26, and August 29, 1975, respectively, after it was intimated about the amount of profits due to it on July 20, 1975. The share profits for the subsequent year was withdrawn in a lump sum on August 31, 1976. The trust was one registered under Section 12A and its income was exempted from payment of tax under Section 11 up to and inclusive of the assessment year 1974-75. The assessing authority similarly exempted its income for the assessment year 1975-76 as well. But this order was set aside by the Commissioner of Income-tax on November 17, 1979, by his order annexure B passed in exercise of the powers under Section 263 of the Act. The Commissioner took the view that the delayed withdrawal of the share of profits due for the accounting year 1974-75 ending on March 31, 1975, on July 26, and August 29, 1975, amounted to investment of the funds of the trust in the firm, <ORG>, in which persons referred to in Sub-section (3) of Section 13 had a substantial interest. The trust thus violated the provisions of Section 13(1)(c)(ii) of the Act and its income was not entitled to exemption under Section 11 . The order of assessment was, therefore, set aside and the Income-tax Officer was directed to dispose of the matter afresh. The assessee challenged this order in appeal before the <ORG>.

6. A view similar to that taken by the Commissioner in annexure B was taken by the Income-tax Officer, while completing the assessment for the year 1976-77 and he denied the trust the benefit of the exemption under Section 11 . But the assessment was set aside in appeal by the Commissioner of Income-tax (Appeals) who upheld the assessee's contention that mere retention of the profits due in <ORG> would not amount to investment. The <ORG> went up in appeal to <ORG>. This appeal was heard along with the assessee's appeal for 1975-76 and they were disposed of by the consolidated order annexure E out of which the four questions mentioned earlier have been referred for the opinion of this court.

7. Income-tax Reference No. 482 of 1982 relates to the assessment year 1975-76. The facts and the sequence of events are similar to those of <ORG> for 1975-76 and we are not therefore repeating them here.

8. We shall deal with Income-tax References Nos. 472 to 474 of 1982, in the first instance. The contention of the <ORG> before the <ORG>, as it was before us, in relation to both the assessment years, was that the profits due to a partner from a firm arose from day to day, and, therefore, the share of profits due to the assessee. from <ORG> should have been withdrawn before the close of the accounting year. By retaining it in the firm beyond that date, the amount remained invested in the firm thereby disentitling the assessee to the benefit of the exemption, under Section 11 , by virtue of Section 13(2)(h) . This did not find favour with the <ORG> who held that there was no forfeiture of the exemption by the delayed withdrawal of the profits. The suo motu revisional order of the Commissioner of Income-tax was, accordingly, set aside.

9. But this did not avail the assessee for the year 1976-77, where the <ORG> specifically raised the further plea that the contribution of capital by the assessee-trust in <ORG> was investment in a concern in which the persons referred to in Sub-section (3) of Section 13 had a substantial interest and, therefore, Section 13(2)(h) precluded any exemption of the assessee's income. This was upheld by the <ORG> and the Departmental appeal was allowed. But, the <ORG> did not apply this ratio for the year 1975-76 for the reason that the Commissioner of Income-tax had set aside the order of assessment only on the sole ground of delayed withdrawal of the share of profits, and it was not open to the <ORG> to sustain it on other grounds.

10. Now, coming to the common question which arises for both the years, Section 11 provides, inter alia, that income derived from property held under trust wholly for charitable or religious purposes shall not be included in the total income of the person in receipt of the income. There is no dispute that the trust in question is one wholly for charitable purposes. Section 13 enumerates certain contingencies when Section 11 will not apply. We are concerned with Sub-clause (ii) of Clause (c) of Sub-section (1) of the section which provides that nothing contained in Section 11 shall operate to exempt the income of a trust for religious or charitable purposes, if any part of the income or any property of the trust is, during the previous year, used or applied directly or indirectly for the benefit of any person referred to in Sub-section (3). Sub-section (3) refers to various persons the benefit derived by whom precludes the trust from claiming the benefit of exemption under Section 11 . There is no dispute that the other two partners of <ORG> are those referred to in Sub-section (3). Sub-section (2) of Section 13 mentions certain circumstances in which the income or the property of the trust will be deemed to have been used or applied for the benefit of a person referred to in Sub-section (3). It contains eight Clauses (a) to (h) of which we are concerned with Clause (h) only. It provides that the income or the property of a trust shall be deemed to have been used or applied for the benefit of a person referred to in Sub-section (3), if any funds of the trust are, or continue to remain, invested for any period during the previous year in any concern in which any person referred to in Sub-section (3) has a substantial interest. Clause (h) reads :

"13. (2)(h) If any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971) in any concern in which any person referred to in Sub-section (3) has a substantial interest."

11. We may also refer to Sub-section (4) which provides that, notwithstanding anything contained in Clause (c) of Sub-section (1), in a case where the aggregate of the funds of the trust invested in a concern in which a person referred to in Sub-section (3) had a substantial interest did not exceed five per cent. of the capital of that concern, the exemption under Section 11 shall not be denied in relation to any income other than the income arising to the trust from such investment, by reason only that the funds of the trust have been invested in a concern in which such person had a substantial interest. Since it is Section 13(2)(h) that is invoked by the <ORG>, the question for consideration is whether any funds of the assessee-trust continued to remain invested in the firm <ORG> merely by reason of the alleged delay in the withdrawal of the share of profits by a few months, after the end of the previous year.

12. We may also point out that this case of the <ORG>, based on the delayed withdrawal of the profits after the close of the previous year on March 31, does not, on its face, attract the exclusionary provision of Clause (h) of Sub-section (2) even assuming that such delayed withdrawal amounted to investment. What the provision stipulates is investment, initial or continued, of the funds of the trust in the concern in question for any period during the previous year. An investment or the continuance of the investment during any part of the previous year is the sine qua non for the applicability of this clause. Non-withdrawal of the profits or the retention thereof beyond the end of the previous year is thus outside the pale of Sub-section (h) while dealing with the assessment for the year corresponding to the aforesaid previous year. The conditions referred to in Clause (h) are cumulative all of which have to be satisfied before the deeming provision in Sub-section (2) could be attracted, and the assessee held to have used or applied the income of the trust for the benefit of a person referred to in Sub-section (3). The assessee cannot, therefore, be deprived of the exemption under Section 11 relying on Clause (h) above quoted for the years 1975-76 and 1976-77, merely because the share of profits was withdrawn from the firm only after the end of the previous year.

13. Standing counsel for the <ORG>, however, pleaded that the share of profits due to a partner accrued from day to day, and the assessee-trust should periodically withdraw its share of profits without waiting for the end of the accounting period or for audit or settlement of accounts. This argument need not detain us long because, in our view, the crucial ingredient for Clause (h) of Sub-section (2) of Section 13 to apply, is an investment of the funds of the trust in a concern of the nature mentioned. If mere delay in withdrawal of profits by the trust does not ipso facto constitute "investment" of the funds of the trust, the question of profits accruing de die in diem, stressed by standing counsel loses its relevance. Moreover, we shall deal with the point in brief though we do not find any substance in this contention of the <ORG>.

14. This question arose for consideration before <ORG> in <CITATION> [19651 56 ITR 42 ; AIR 1965 SC 1343.

<NAME>, representing a Hindu undivided family, was a partner in a firm <ORG> for which the accounting year was the calendar year. The family was disrupted by a deed of partition dated November 12, 1955, and its properties were divided. <NAME> was allotted the profits of the firm for the year commencing January 1, 1955, the accounts for which were yet to be made up. An amount of Rs. 21,051 was later received by <NAME> as the share of profits for the year 1955, and the question was whether the whole or any portion of this amount was liable to be assessed in the hands of the Hindu undivided family, as having accrued to it before November 12, 1955. In that context, the court observed (at page 46) :

"In the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss ; on such dormant profit or loss undoubtedly taxable profits, if any, of the business will be computed. But dormant profits cannot be equated with profits charged to tax under Sections 3 and 4 of the Income-tax Act. The concept of accrual of profits of a business involves the determination by the method of accounting at the end of the accounting year or any shorter period determined by law. If profits accrue to the assessee directly from the business the question whether they accrue de die in diem or at the close of the year of account has at best an academic significance, but when upon ascertainment of profits the right of a person to a share therein is determined, the question assumes practical importance, for it is only on the right to receive profits or income, profits accrue to that person. If there is no right, no profits will be deemed to have accrued."

15. The observations of Bhagwati J., in <CITATION>  26 ITR 27 (SC), that it would be absurd to suggest that the profits of a company could accrue from day to day or even from month to month were referred to. The working of a company from day to day could certainly not indicate any profit or loss, even its working from month to month could not be taken as a reliable guide for the purpose. It would be only reasonable to determine the profit or loss as the case may be at the end of every year. The court then went on to observe (at page 49) ;

"In the case of a partnership, where by a covenant binding between the partners the accounts are to be made at stated intervals, the right of a partner to demand his share of the profits does not arise until the contingency which by operation of law or under a covenant of the partnership deed gives rise to that right has arisen."

16. <CITATION>  29 ITR 535 (SC), the court held that it cannot be inferred that whenever a partnership receives gross receipts in respect of a business transaction in which is embedded some profit or loss, that profit or loss results immediately on the gross receipts reaching the partnership to the individual partners in their aliquot shares. Normally, for profits to accrue or arise, there should be a right either under the statute or under a contract between the taxpayer and others which entitles the former to make a demand for those profits.

17. It cannot, therefore, be laid down as an absolute proposition that the right of a partner to receive his share of profits arises from day to day. It depends on the agreement between the parties, and as to when he can demand his share of the profits. This is for the reason that it could not be said at any given point of time during the accounting period, that there is any profit liable to be divided between the partners, the fortunes of the firm fluctuating at different times.

18. What <ORG> had held in Ashohbhai's case [1965] 56 ITR 42 has not in any manner been whittled down by the observation in page 376 of the decision in <CITATION> .  66 ITR 373 (SC) (while referring to <NAME>'s case  56 ITR 42 (SC) or by <CITATION>  66 ITR 378 (SC) on which counsel for the <ORG> laid stress. We are, therefore, of the opinion that the profits of a partnership accrue to a partner when he gets the right to demand the same either under the provisions of the agreement between the parties, or in their absence, under the provisions of the Partnership Act . If this be the position, the contention of counsel for the <ORG> that there should be a periodical withdrawal of the profits, on pain of the unwithdrawn amounts being treated as investment in the firm cannot be accepted. It is too much to expect a partner to withdraw amounts by way of profits from day to day when there is no knowing even, whether the firm is making a profit or a loss. That matter will stand crystallised only at the end of the year when the accounts are settled between the partners.

19. But, as mentioned by us earlier, this question is really not of any relevance, the crucial question being whether non-withdrawal of the share of profits from the firm by itself, can amount to "investment". At this stage, we must refer, if only for the purpose of rejection, to a contention raised by standing counsel for the <ORG> that the word "invested" in Clause (h) is not of any significance as, according to him, all that is required is that any funds of the trust continued to remain in any concern, whether it was an investment or not. He would read the expression "or continue to remain" as qualifying the expression "in any concern", and not the word "invested". Such a reading, to say the least, does violence to the plain language of the provision and we reject the invitation of the <ORG> to read Clause (h) in this fashion. We are satisfied that Sub-clause (h) requires that the funds of the trust are or continue to remain, invested in any concern of the nature mentioned therein. So the question is, what is "investment" ?

20. An investment popularly means every application of money which is intended to fetch a return by way of interest, income or profit. This only employed as capital in a business is money invested in business. (<NAME>,, in Tax Commissioner v. <ORG> [1902] 22 NZLR 445, as extracted in Law Lexicon by <NAME>). <ORG> had occasion to consider the meaning of the term "investment" in <CITATION>  138 ITR 585. The facts of that case are apposite. The assessee, a private limited company incorporated for promoting charitable objects, was a partner in several firms. The assessee retired from those firms, but the firms did not have adequate cash resources to pay the amounts due to the" assessee on the settlement of accounts by way of contribution to capital and share of profits. The amounts due were, therefore, transferred to current accounts in the name of the assessee in the respective firms. The exemption under Section 11 having been denied, the question arose whether the retention of the amounts in the firms constituted investment of the funds of the assessee in those firms. After referring to various decisions on the point, the court observed (at page 593) :

" From the above, it is clear that in order to constitute an investment, the moneys must be laid out in such a manner as to acquire some species of properties which would bring an income to the investor. Viewed in that sense, we are unable to conclude that there has been an investment of any moneys by the assessee with any of the partnership firms. The various partnership firms are bound to return the moneys due and payable to the assessee-firm as and when demanded. It has not been found either by the <ORG> or by the lower authorities that the said moneys have been invested by the assessee-firm as understood in business parlance with a view to obtain any profit. It necessarily follows that Clause (h) of Sub-section (2) of Section 13 is equally not attracted."

21. <CITATION>  170 ITR 150 (Cal), it was observed that the expression "invest" in Section 13(2)(h) connotes a positive act on the part of the trust whereby the funds of the trust are laid out or committed in any particular property or business or transaction with the object of earning a profit or financial advantage or return. <ORG> took a similar, view in .

22. The retention of the share of profit of the trust in the firm, <ORG>, does not, in the circumstances, constitute any investment, which as we have mentioned earlier, is a necessary ingredient of Section 13(2)(h) .

23. We are of the opinion, for the various reasons stated above, that the assessee-trust is not deprived of the benefit of the exemption under Section 11 for the year 1975-76 by virtue of Section 13(2)(h) of the Act. The <ORG> was justified in setting aside the order of the Commissioner of Income-tax under Section 263 denying such exemption to the assessee.

24. Counsel for the <ORG> contended however, that the view taken by the <ORG> against the assessee for the year 1976-77, applied with equal force for 1975-76 also. The <ORG> had overruled this plea on the ground that the Commissioner of Income-tax had set aside the order of assessment only on the ground that delayed withdrawal of the profits by the assessee constituted "investment". The <ORG> held that the <ORG> was not entitled to support the Commissioner's order in revision under Section 263 , on any other ground, a view for which they drew support from the decision of <ORG> in <CITATION> .  140 ITR 490. That was a case where the order of the Income-tax Officer allowing continuation of the registration of a firm was cancelled by the Commissioner of Income-tax in exercise of his powers under Section 263 on the ground that the firm was not entitled even to registration, because the share allocation actually adopted in the books was different from that mentioned in the deed of partnership and that the constitution of the firm had changed and, therefore, the firm could not be granted renewal of registration. The Appellate <ORG> found these premises to be erroneous and allowed the assessee's appeal. But the <ORG> observed that the Income-tax Officer's order was erroneous for another reason, mentioned by it. The question arose whether it was competent for the <ORG> to sustain the order of the Commissioner under Section 263 on grounds other than those taken by the Commissioner. The court held (at page 502) :

"The jurisdiction vested in the Commissioner under Section 263(1) of the Act is of a special nature or, in other words, the Commissioner has the exclusive jurisdiction under the Act to revise the order of the Income-tax Officer if he considers that any order passed by him was erroneous in so far as it was prejudicial to the interests of the <ORG>. Before doing so, he is also required to give an opportunity of being heard to the asses-see. If after hearing the assessee in pursuance of the notice issued by him under Section 263(1) of the Act, he is not satisfied, he may pass the necessary orders. Of course, the order thus passed will contain the grounds for holding the order of the Income-tax Officer to be erroneous, as contemplated under Section 263(1) of the Act. Feeling aggrieved therefrom, the assessee may file an appeal against the same, as provided under Section 253(1)(c) of the Act. In the memorandum of appeal, the assessee is supposed to attack the order of the Commissioner and to challenge the grounds for decision given by him in his order. At the time of the hearing, if the assessee can satisfy the <ORG> that the grounds for decision given in the order by the Commissioner are wrong on facts or are not tenable in law, the <ORG> has no option, but to accept the appeal and to set aside the order of the Commissioner. The <ORG> cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well. If the <ORG> is allowed to find out the ground available to the Commissioner to pass an order under Section 263(1) of the Act, then it will amount to a sharing of the exclusive jurisdiction vested in the Commissioner, which is not warranted under the Act. It is all the more so, because the <ORG> has not been given any right of appeal under the Act against an order of the Commissioner under Section 263(1) of the Act. In case he proceeds thereunder after hearing the assessee in pursuance of the notice given by him, then the appeal filed by the assessee under Section 253(1)(c) of the Act cannot be treated on the same footing as an appeal against the order of the Appellate Assistant Commissioner passed in assessment proceedings, where both the parties have been given the right of appeal. In this view of the matter, the argument raised on behalf of the <ORG>, that, in appeal, the <ORG> may uphold the order appealed against on grounds other than those taken by the Commissioner in his order, is not tenable. Under Section 263 of the Act, it is only the Commissioner who has been authorised to proceed in the matter and, therefore, it is his satisfaction according to which he may pass necessary orders thereunder in accordance with law. If the grounds which were available to him at the time of the passing of the order do not find a mention in his order, appealed against, then it will be deemed that he rejected those grounds for the purpose of any action under Section 263(1) of the Act. In this situation, the <ORG>, while hearing an appeal filed by the assessee, cannot substitute the grounds which the Commissioner himself did not think proper to form the basis of his order."

25. We are in agreement with this view. In entertaining an appeal from the Commissioner's order what the <ORG> does is to examine whether the said order is sustainable in law and whether it is within the powers conferred by Section 263 . Therefore, when the Commissioner has chosen to set aside the order of the Income-tax Officer only on a particular ground, the <ORG> is not entitled to go beyond and sustain the order of the Commissioner on grounds different from that relied on by the Commissioner himself. Even otherwise, the question whether there was an investment of the funds of the trust in this case, during any part of the previous year is basically a question of fact on which the Commissioner had not rendered any finding for the year 1975-76. The finding of the Income-tax Officer was to the contrary and in favour of the assessee. The <ORG> was, therefore, justified in not entertaining this plea of the <ORG> and in holding that the assessee was entitled to the benefit of the exemption after setting aside the order of the Commissioner. The decision of the <ORG> for 1975-76 has therefore only to be affirmed.

26. We now come to the year 1976-77. Here, the assessee is at the losing end before the <ORG>. The assessee's entitlement to the exemption again depends on the construction of Clause (h) of Sub-section (2) of Section 13 . Thereunder, the exemption under Section 11 will be denied if any funds of the trust are invested during any period of the previous year in any concern in which a person referred to in Sub-section (3) had substantial interest. The assessee-trust had contributed a capital of Rs. 5,000 out of Rs. 30,000 to the firm, <ORG>. The <ORG> held that this capital contribution of Rs. 5,000 attracts Clause (h) and, therefore, the assessee is not entitled to the exemption. The assessee's contention is that capital contribution to a firm in which it is a partner, is not an "investment" and secondly, that the "concern" contemplated by Clause (h) does not include a firm in which the assessee-trust is a partner. It is argued that the scheme of Clauses (a) to (h) contemplates the existence of a third party who is benefited by the assessee's investment and the like, one to which the assessee is a stranger. A partnership in which the trust is a partner is the trust itself, it is part of it and, therefore, it is not a concern, contribution to whose capital will attract the exclusionary Clause (h)..

27. The question is whether this is correct. Counsel, inter alia, referred us to the decisions of <ORG> in <CITATION>  106 ITR 292 and <CITATION>  120 ITR, 49 and of a Full Bench of this court in CWT v. <NAME> (<NAME>)  179 ITR 543, to emphasise that a firm is not a legal person, distinct from its partners, but a plurality of persons, and, therefore, there can be no dealings between a partner and the firm as such. The business of the firm is the business of the partners, and its profits their profits. The assessee contends on the strength of these decisions that the contribution of capital to a firm in which it is a partner is not hit by Section 13(2)(h) .

28. We have already referred to the meaning of the term "investment" as the laying out of money with a view to fetch a return. Contribution of capital to a firm is made ordinarily with the expectation of deriving a profit from the venture. It is not laid out for any other purposes. It cannot, therefore, be termed as anything other than an investment. In fact, in common parlance, the expenditure of money for the purpose of a business is always referred to as investment in the business. We are unable to agree with counsel for the assessee that contribution of share capital to a firm is not an "investment" made by the partner.

29. Before dealing with the other points raised, we shall refer to a subsidiary contention that the investment contemplated by Clause (h) is an investment which will generate an income by itself without any other effort, and not income earned by any business activity carried on with the aid of the money invested. It refers to fixed deposits and such other investments which will by that very fact, and without anything more, fetch a return or income regularly ; something which fetches unearned income and not earned income--says counsel. But we do not find any warrant for limiting the meaning of the term "investment" in Clause (h) in this fashion ; particularly when loans to such concerns are covered by Clause (a) of Sub-section (2) of Section 13 . The decision of <ORG> in Nawn Estates (P.) <CITATION>  106 ITR 45 relied on by counsel does not lay down any such proposition. We overrule the contention.

30. The main thrust of counsel's arguments was, however, that contribution of capital to a firm of which the trust is a partner is not hit by Clause (h) for the reason that the concern contemplated therein is a stranger concern and not a concern in which the trust is itself a partner. We are not able to join counsel for the assessee to draw inspiration from Clauses (a) to (g) of Sub-section (2) of Section 13 to hold that the firm or institution in which the trust invests should be a total stranger for the purpose of Clause (h) as well. What counsel wants is to read the expression "any concern" as meaning "any concern in which the trust is not a partner".

31. He wants to read an exemption into the section that the concern therein means something other than a partnership of which the trust is a partner. Apart from the inability of this court to read words into the section which are not there, which is part of the legislative, and not judicial process, we are of the opinion that the words "any concern" are comprehensive and embrace every concern which satisfy the qualification of being one in which any person referred to in Sub-section (3) has a substantial interest. If the concern in which the funds of the trust are invested satisfies this condition, that is sufficient to bring it within the ambit of Clause (h). We do not find any ambiguity in the language of the section which requires us to adopt an interpretative process and read it in the way in which the assessee wants it. The question of applying liberal or strict rules of construction, as laid down in certain decisions relied on by either side, will arise only if there is any ambiguity which requires to be resolved. None such exists here.

32. What Section 13(1)(c)(ii) does is to fetter the exemption provided by Section 11 and to deny it to the assessees who have used or applied their income for the benefit of any person referred to in Sub-section (3). Sub-section (2) of Section 13 creates a fiction as to when the income of the trust can be stated to be used or applied for the benefit of such a person. This fiction has to be given its full effect. Clause (h) itself is clear and specific in its terms and so far as we could see, without ambiguity in it. Therefore, we hold that "any concern" in Clause (h) refers also to a concern in which the trust is a partner, provided it is one in which any person referred to in Sub-section (3) has a substantial interest and the funds of the trust are, or continue to remain, invested in that concern during any period of the previous year.

33. It may be true as pointed out by counsel for the assessee, that a trust may be prevented from venturing into profitable activities by entering into partnership with persons in whom it has confidence, on pain of its forfeiting the exemption under Section 11 . That, states counsel, will be the result of accepting the Departmental view. But then, the legislative intent has primarily to be gathered from the words of the section. The very purpose of Section 13 is to prevent evasion of tax by the creation of spurious trusts. If <ORG> limits the exemption to certain classes of trusts satisfying certain conditions, it is not permissible for this court to expand the exemption de hors the provisions or by reading words therein which are not there. It may be that genuine trusts like the assessee also suffer denial of exemption, but that is no reason to deviate from the plain language of the statute. We cannot, therefore, accept the contentions of the assessee regarding the applicability of Section 13(2)(h) to cases where the trust contributes capital to a firm of which it is a partner.

34. A feeble contention was raised that the capital contribution of Rs. 5,000 is less than five per cent. of the capital of <ORG> and, therefore, the case is covered by Sub-section (4) of Section 13 . We cannot agree. The capital of <ORG> was Rs. 30,000 and the contribution of the trust is Rs. 5,000, which exceeds five per cent. The fact that further amounts were occasionally pumped in for the day to day working of the firm will not make those amounts capital for the purpose of Sub-clause (4). We overrule this plea.

35. The assessee-trust is not, therefore, entitled to the benefit of the exemption under Section 11 for the year 1976-77. The order of the <ORG> is correct for this year.

36. The decision rendered by us in Income-tax References Nos. 472 to 474 of 1982 for the year 1975-76 must govern Income-tax Reference No. 482 of 1982 also where the facts are parallel with the Income-tax Officer exempting the income of the assessee under Section 11 , for the year 1975-76, the Commissioner of Income-tax setting aside the said order under Section 263 of the Act on the ground of alleged delayed withdrawal of the assessee's share of profits from the two firms <ORG> and <ORG>, and the <ORG> in turn setting aside the order of the Commissioner on precisely the same grounds as those in the case of <ORG>. For the reasons stated by us in Income-tax References Nos. 472 to 474 of 1982, Income-tax Reference No. 482 of 1982 has also to be answered in favour of the assessee.

37. Accordingly, we dispose of the references, answering the questions referred to us for the year 1975-76 in favour of the assessees and against the <ORG>, and the questions referred for the year 1976-77 against the assessee and in favour of the <ORG>.

38. There will be no order as to costs.


CASE NO.: Appeal (civil) 4092 of 2001 PETITIONER: State of U.P. RESPONDENT: <NAME> & Others DATE OF JUDGMENT: 16/12/2005 BENCH: S.B. Sinha & P.P. Naolekar JUDGMENT:

JUDGMENT W I T H CIVIL APPEAL NOS. 3872, 3873, 4038, 4093-4102, 7545-7646, 7647-7748 of 2001, CIVIL APPEAL NO. 6810 of 2005 and CIVIL APPEAL NO. 6814 of 2005 <NAME>, J :

The jurisdiction of <ORG> to issue a direction for framing a scheme for regularisation of the employees of <ORG> (for short "the <ORG>") is in question in this batch of appeals which arise out of judgments and orders passed by <ORG> of Judicature at Allahabad in the writ petitions filed by the private respondents either dismissing or allowing the same.

ACT The legislature of the State of Uttar Pradesh enacted The Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964 (for short "the Act"). The <ORG> has been established under Section 26-A of the Act. Section 26-B provides for the constitution of the <ORG>. In exercise of its power conferred upon it by Section 25-A and 26-X of the Act, regulations have also been framed by the <ORG> laying down the terms and conditions of the service of the employees of the Market Committees known as the Uttar Pradesh Agricultural Produce Market Committees (Centralised) Services Regulations, 1984 (for short "Services Regulations"). Similar regulations have also been framed by the <ORG> in respect of its own employees being the Uttar Pradesh Agricultural Produce Markets <ORG> (Officers and Staff Establishment) Regulations, 1984 (for short "Establishment Regulations").

BACKGROUND FACT In the <ORG> of Uttar Pradesh, there are 244 Market Committees. 3395 posts were sanctioned but indisputably 5600 appointments have been made. We are herein concerned with the orders of appointments and orders of terminations issued in respect of about 1021 employees who were appointed between the period 1.4.1996 and 30.10.1997. A resolution was passed by the <ORG> on or about 30th September, 1996 proposing regularisation of the services of those employees who have completed one thousand days of service. The <ORG> had also its construction divisions. The said proposal was, however, confined to the employees working in the construction divisions against contingency funds. Approval having been sought for from <ORG> in relation to framing of appropriate rules, in this behalf, informations were sought for from various departments including <ORG> in regard to the appointments made in past six months by a letter dated 20th November, 1997. Relevant informations were furnished by the Director of the <ORG> whereafter the <ORG> sought for further informations and details regarding the appointments made in the <ORG> and <ORG> by a letter dated 17.3.1998. Such informations were sought for by the <ORG> again by a letter dated 18.5.1998. On or about 12.2.1999, an order was issued by the <ORG> directing that services of all such employees who had been irregularly appointed during the period 1.4.1996 to 30.10.1997 be cancelled on last-come-first-go-basis stating:

"1. The irregular appointment made in the Mandi Parishad and Mandi Samities during the period w.e.f. 1.4.96 to 30.10.97 should be cancelled immediately. The following course should be adopted to terminate such appointments:

(a) There is no legal impediment in terminating the service of the employee concerned after cancelling the appointments which have been made without any created/ sanctioned post but the reason therefor shall have to be recorded in the order.

(b) There is no legal impediment in terminating the service after cancelling the appointments of such persons as did not have educational qualifications prescribed for the post concerned but the reason therefor should be recorded in the order.

(c) The termination of service of such persons, as have been appointed in relation to some post and also have educational qualification prescribed for that post, should be made in accordance with the procedure mentioned in their appointment order. In case, no procedure is mentioned in the appointments order, their service should be terminated after giving either notice or pay in lieu thereof.

(2) In this regard I have to inform this thing also that after making intensive examination in respect of irregular appointments made in the Mandi Parishad and Mandi Samities before 1.4.96, kindly furnish clear report alongwith detailed statement by 20.2.99.

(3) Kindly make available in each case by 18.2.99 your proposal with clear recommendation to the <ORG>. for action against the officers responsible for the said irregular appointments."

Further directions were issued on 17.3.1999 in the following terms:

"In regard to the appointed subject and Semi <ORG>. Letter No. Dire-Camp/99-468 dt. 8.3.99, I have been directed to say that keeping in view, the decision taken by <ORG>. in regard to irregular appointments made on the post of various categories in <ORG>, there has been no requirement of prescribed procedure rules. In such circumstances, the proposal sent to <ORG>. vide letter 1418/Camp dt. 18.10.96 of <ORG> is rejected by the <ORG>. after due consideration."

Pursuant thereto or in furtherance of such directions, the services of a large number of employees were terminated on or about 20th March, 1999.

On 27.1.1998, the Director of the Board informed the Secretary, <ORG> that all appointments are unauthorized/ irregular and, thus, void ab initio and, therefore, their appointments should be terminated following the rules. In the said letter, the opinion of the Chairman of the Board was quoted stating:

"As the action, whatsoever, taken in this matter will create wide ranging ramifications (both political and administrative) therefore it will be proper to send the factual report of the whole case to Govt. for guidance. It will be expedient to take further action after consulting the department of justice and obtaining orders from the Hon'ble Minister for Agriculture and the Hon'ble Chief Minister."

Photocopies of the notesheets and photocopies of the details of all appointments and the report received from the Deputy Director (Administration) were annexed thereto.

It may be noticed that the <ORG> in the meantime had also refused to approve the proposed rules framed by the <ORG> for regularisation of its employees.

PROCEEDINGS BEFORE THE HIGH COURT Questioning the aforementioned directions of the State, one <NAME> filed a writ petition before <ORG> of <ORG> in April, 1999. By a judgment and order dated 11.8.2000, a learned Single Judge of <ORG> allowed the same holding that the orders of termination issued pursuant to the orders of <ORG> dated 12.2.1992 were illegal. A Division Bench of <ORG>, <ORG>, put its seal of approval to the order of the learned Single Judge by a judgment and order dated 5.9.2000 in similar writ petitions filed by other dismissed employees. A writ petition filed by one <NAME>, however, was dismissed by another Division Bench of <ORG> at Lucknow upholding the said order of <ORG>.

The parties are, thus, before us.

SUBMISSIONS On behalf of the Board:

Submission of Mr. <NAME>, learned senior counsel appearing on behalf of the Board are:

(i) In terms of the statutory mandate contained in Section 26-M of the Act, the Board was bound by the directions issued by the <ORG>.

(ii) The appointments having been made in utter disregard of the mandatory provisions of the Services Regulations and the Establishment Regulations, the employees did not derive any legal right to continue in the said posts.

(iii) Such appointments having been made on a pick and choose method and on an adhoc basis, the judgments of <ORG> cannot be sustained.

(iv) Indisputably the provisions of U.P. Industrial Disputes Act and the rules framed thereunder relating to retrenchment of workmen were complied with and in that view of the mater it cannot be said that the orders of termination passed against the employees were illegal.

(v) In any view of the matter, the remedy of the employees, if any, was to approach the industrial courts.

(vi) It is not a case, it was urged, where principles of natural justice were required to be complied with.

On behalf of the <ORG> Mr. <NAME>, learned senior counsel appearing on behalf of the <ORG> of Uttar Pradesh submitted that from the records it would appear that the <ORG> adopted a known criterion for cancellation of appointment of such employees who were in the last slots, namely, 1.4.1996 to 30.10.1997. Such orders of termination ensured that the principles of last-come-first-go basis are followed and the employees are paid one month's salary in lieu of notice as also 15 days wages for each completed year of service by way of compensation. No appointment having been made after 30.10.1997, the impugned judgment of <ORG> cannot be sustained.

On behalf of the Writ Petitioners Mr. <NAME>, learned senior counsel appearing on behalf of the Respondents, on the other hand, urged:

(i) that the appointments of the employees cannot be said to be illegal as the provisions contained in the respective regulations apply to appointments in regular cadre.

(ii) There is no embargo in appointing employees on adhoc basis in exigency of service or on work charge basis recognised in the regulations in view of the fact that such employees do not derive the benefits which are granted to the regular employees.

(iii) Section 26-M of the Act had no application in the facts of the case in view of the fact that appointment of adhoc employees is not a matter which would come within the purview of the functions of the <ORG> as envisaged under Section 26-F and 26-L of the Act. In any event, so far as the appointments of employees employed in the Market Committees are concerned, the same being governed by Section 23 of the Act, Section 26-M thereof will have no application.

(iv) By reason of purported directions issued under Section 26-M, the rights and privileges granted to the employees under other statutes cannot be taken away.

(v) In view of the decision of this Court in <CITATION> [1992 Supp (2) SCC 343] and <CITATION> [], the statutory power of appointment being vested in the <ORG>, the State could not interfere therewith.

(vi) In any view of the matter, the purported policy decision adopted by the <ORG> must be held to be wholly illegal and without jurisdiction as prior thereto the requirements of each of the samities had not been taken into consideration. It was pointed out that even by 1998 full reports had not been submitted by the Board as regards the financial position of <ORG> vis-a-vis the strength of the employees and, thus, the policy decision must be held to have been made without any application of mind.

(vii) A policy decision of a <ORG> cannot be communicated by a demi- official letter without complying with the constitutional norms.

(viii) One set of adhoc employees and/ or daily wagers should not be replaced by another set of adhoc employees/ daily wagers.

(ix) The Board having adopted a resolution to regularise the services of its employees, there was no need to obtain any approval from the <ORG>.

(x) As admittedly no appointment whatsoever was made in terms of the statutory regulations since the inception of constitution of <ORG>, the <ORG> could not have ignored the past practice particularly in a case of this nature where the employees concerned have requisite educational qualifications.

(xi) The court in such a situation can be said to have the requisite jurisdiction in directing a <ORG> within the meaning of Article 12 of the Constitution of India to make a scheme of regularisation.

Mr. <NAME>, learned senior counsel appearing on behalf of another writ applicant submitted that institutions of the market committees and the <ORG> having their activities principally in rural areas, the human problem should not be ignored as without such daily wagers or adhoc employees functions of the statutory body may have to be stopped.

The learned counsel submitted that the appointments being not void ab initio and of no effect, the <ORG> could not have issued directions for termination of their services. As the appointments were made having regard to the necessity felt by <ORG> and the <ORG>, this Court should not exercise its discretionary jurisdiction under Article 136 of the Constitution of India.

Mrs. <NAME>, learned senior counsel appearing on behalf of <NAME> supplemented the arguments of Mr. <NAME> and Mr. <NAME> contending that there was no material before the government for issuing the impugned instructions. It was submitted that the Market Committees having regard to Section 19 of the Act had their own funds, the case of each Committee should have been considered separately.

<ORG> A learned Single Judge of <ORG> in his order dated 11.8.2000, which has been approved by <ORG> of <ORG> in its judgment dated 5.9.2000, held that:

(i) the normal functions of the Board pertain to establishment or construction of new Market yards; control over Market Committees, direction to the Committees to ensure efficiency, etc., it could not have interfered in the functioning of the Market Committees.

(ii) The procedures prescribed were to be applied in relation to selection of regular employees and not adhoc employees or daily wagers.

(iii) No principle has been laid down as to why adhoc employees engaged before 1.4.1996 and after 30.10.1997 should be retained in service and, thus, the action of the <ORG> was discriminatory in nature.

(iv) The Government instead of formulating any policy resorted to an arbitrary method of issuing a 'Tugalaki' order in terminating the services of the employees recruited between 1.4.1996 and 30.10.1997 were also terminated.

(v) Although such irregular appointments have been made by several directors but only those made by two of them, namely, Shri <NAME> and Dr. <NAME>, having been picked up for being cancelled, the same being discriminatory and mala fide, the order impugned in the writ application were unsustainable.

(vi) An employee should not be continued to be kept as adhoc employee for more than 240 days.

(vii) The resolution of the Board to regularise services of such employees who have completed one thousand days of service was valid. As the writ petitioners have been working in various Committees for a long period ranging from six to nine years, termination of their services was arbitrary.

(viii) The principles of natural justice have been ignored in terminating the services of such employees and, thus, the orders terminating the services of the writ petitioners were bad in law.

It was directed:

"Having regard to the discussions made above, I am inclined to hold that written and verbal termination orders of the petitioners issued by the authorities at the direction of the <ORG> as contained in letter dated 12.2.99 are arbitrary, unreasonable and discriminatory and, therefore, all such termination orders along with the irrational impugned letter of source dated 12.2.99 are hereby quashed. A writ of certiorari is issued accordingly. Further, a writ of mandamus is also issued commanding the opposite parties to allow the petitioners to resume their duty with immediate effect. They shall be deemed to have continued in service and as such, they shall be relegated to their original position. However, they will not get their back wages. <ORG> shall within six months resolve and formulate a policy to deal with the terms of their service by giving due consideration to its earlier resolution regarding regularization of their services. The Board will also take stern step to ensure that such an odd situation to the embarrassment of the competent authorities does not arise in future."

However, as noticed supra, <ORG> of the same Court in its judgment dated 13.11.2000 opined that the appointments having been made in violation of the statutory regulations, the appointees must be held to have entered into service through backdoor and in that view of the matter, the <ORG> has the requisite jurisdiction to issue a direction in terms of Section 26-M of the Act.

The judgment of <ORG> dated 5.9.2000 passed in <NAME> v. State of U.P. was made in ignorance of an earlier division bench decision in <CITATION> and, thus, was rendered per incuriam.

RELEVANT PROVISIONS OF THE STATUTES Before adverting to the rival contentions, we may briefly notice the provisions of the said Act.

Market <ORG>s are incorporated and constituted in terms of Sections 12 and 13. Section 19 of the said Act provides for establishment of a Market <ORG> Fund. Sub-section (2) of Section 19 mandates that all expenditure incurred by the committee shall be defrayed out of the said fund and the surplus, if any, shall be invested in such a manner as may be prescribed. Sub-section (3) of Section 19 inter alia illustrates as to how such funds are to be utilised including salaries, pensions and allowances, etc. and other expenses, as may be prescribed, as specified in clause (ii). The proviso appended thereto mandates that annual expenditure in respect of matters specified in clause (ii) shall not exceed 10% of the total annual receipts of the <ORG> excluding loans raised by it and advances or grants made to it except with the prior approval of the <ORG>.

Section 23 of the Act occurring in Chapter IV provides for appointments of officers and servants of <ORG> and their conditions of services. The appointments of such officers who may be appointed for carrying out the purpose of the Act must be done in terms of the bye-laws framed by it. Sub-section (2) of Section 23 envisages that every <ORG> shall have such number of Secretaries and such other officers as may be considered necessary by the <ORG> for the effective discharge of the functions of the <ORG>, appointed by the <ORG> on such terms and conditions as may be provided for in the regulations made by it.

Chapter V of the Act deals with external control. Establishment and constitution of the <ORG> are envisaged under Sections 26-A and 26-B. Section 26-A empowers the <ORG> to appoint such officers and servants as it considers necessary for efficient performance of its functions on such terms and conditions, as may be provided for in the regulations made by the <ORG>. Section 26-L provides for the powers and functions of the <ORG>. Functions of the <ORG> are provided for in Sub-section (1) thereof stating:

"(i) superintendence and control over the working of the Market Committees and other affairs thereof including programmes undertaken by such Committees for the construction of New Market Yards and development of existing Markets and Market Areas;

(ii) giving such direction to Committees in general or any Committee in particular with a view to ensure efficiency thereof;

(iii) any other function entrusted to it by this Act;

(iv) such other functions as may be entrusted to the Board by <ORG> by notification in the <ORG>."

The powers of the <ORG> have been enumerated under Sub-section (2) of Section 26-L of the Act which includes:

"(x) to do such other things as may be of general interest to Market Committees or considered necessary for the efficient functioning of the Board as may be specified from time to time by <ORG>."

Section 26-M of the Act empowers <ORG> to issue directions in the following terms:

"(1) In the discharge of its functions, the Board shall be guided by such directions on question of policy, as may be given to it by <ORG>.

(2) If any question arises whether any matter is or is not a matter as respects which <ORG> may issue a direction under sub-

section (1), the decision of <ORG> shall be final."

Section 26-V of the Act provides for accounts and audit. Section 26- X thereof empowers the <ORG> to make regulations with the previous approval of <ORG> which shall be subject to the said Act and the rules made thereunder. Section 32 of the Act confers power upon the <ORG> to call for the proceedings of a <ORG> for the purpose of satisfying itself as regard legality or propriety of a decision or an order or orders and pass order thereon as it may deem fit if it is of the opinion that the decision or order of the <ORG> should be modified, annulled or reversed. Section 33-B of the Act reads as under:

"Powers of the State Government.-(1) The State Government with a view to satisfying itself that the powers, functions and duties of the <ORG> or a <ORG> by or under this Act are exercised or performed by it properly, may require the Commissioner or the Collector or any other person or persons to inspect or cause to be inspected any property, office, document or any work, of the <ORG> or the <ORG> or to make inquiries into all or any of the activities of the <ORG> or the <ORG> in such manner as may be prescribed and to report to it the result of such inquiry within such period as may be specified.

(2) The <ORG> or the <ORG>, as the case may be, shall give to the Commissioner or the Collector, or other person or persons, all facilities during inspection and for the proper conduct of the inquiry and shall produce any document or information in its possession, when so demanded for the purpose of such inspections or inquiry, as the case may be."

Section 39 of the Act provides for the bye-laws making power in <ORG>. Proviso appended to Section 33 provides that no bye- law other than a bye-law made by adopting draft or model bye-law suggested by the <ORG> shall be valid unless approved by it. Section 40 of the Act provides for rule making power.

<ORG> framed rules known as "The U.P. Krishi Utpadan Mandi Niyamavali, 1965 (for short "the Rules") in terms of Section 40 of the Act. The functions, duties and powers of the <ORG> in terms of Sections 16 and 17 of the Act have been laid down in Rule 46. Rule 60 states that the qualification, designations, grades, salaries and allowance of the posts of officers and servants whose appointing authority is the <ORG> shall be approved by the Director. Such appointment made by the <ORG> under sub-section (1) of Section 23 of the Act for those posts wherefor the <ORG> is the appointing authority shall be intimated within 30 days of the date of such appointments to the Directors or to such officer as may be authorised by the Director in this behalf. Sub-rule (3) of Rule 60 mandates that the Market <ORG> shall maintain service records and character rolls in such forms as are prescribed for government servants and those records shall be kept in the custody of the Market Secretary. Rule 63 provides for the functions, powers and duties of the Secretary.

In exercise of its regulation making power, as noticed hereinbefore, Services Regulations and the Establishment Regulations have been made.

Regulation 2(e) defines "Employee" to mean 'every person appointed on whole time basis in Classes A, B, C and D mentioned in Regulation 5, whether on contract basis, on deputation or otherwise but does not include persons employed on daily wages, work charged and on part-time basis. Chapter IV of the Establishment Regulations provides for recruitment and appointment. Regulation 9 specifies the appointing authority in respect of the posts shown in Column 1 of the table. Regulation 10 provides for the source of recruitment inter alia providing that 85 per cent posts in lowest grade in Class C shall be filled by direct recruitment and 15 per cent by promotion from Class D and all the posts in Class D shall be filled by direct recruitment. Regulation 11(1) provides for constitution of <ORG> for the purpose of recruitment to Class A and B posts whereas Regulation 11(2) provides for constitution of <ORG> for recruitment to Class C and D posts. Regulation 12 empowers the appointing authority to determine the number of vacancies in all the classes to be filled during the course of the year as also the number of vacancies to be reserved for candidates belonging to Schedules Castes and Scheduled Tribes and other categories under Regulation 8. The other sub-regulations contained in Regulation 12 provides for the mode and manner in which such vacancies shall be filled up. Chapter V lays down the conditions of service by way of appointment, probation, confirmation and seniority. Chapter VI provides for superannuation, pay, allowances and other service conditions.

The Services Regulations contain similar provisions. Part III of the said Regulations deal with recruitment and procedure. Regulation 10 lays down that recruitment may be made either from the open market or from promotion. Regulation 11 provides for reservation. Constitution of Selection Committee is contained in Regulation 12. Regulation 14 provides for determination of vacancies whereas Regulation 16 provides for the procedure of selection by direct recruitment. Chapter V of the said Regulations lays down the mode and manner in which the appointment, probation, confirmation and seniority would be made.

LEGALITY OF THE APPOINTMENTS The <ORG> is a 'State' within the meaning of Article 12 of the Constitution of India. It was constituted in terms of the provisions of the said Act. The powers and functions of the <ORG> as also the State in terms of the provisions of the statute having been delineated, they must act strictly in terms thereof. It is a statutory authority. Its powers, duties and functions are governed by the statute. It is responsible for constitution of <ORG> for the purpose of overseeing that the agriculturists while selling their agricultural produce receive the just price therefor. It not only regulates sale and purchase of the agricultural produce but also controls the markets where such agricultural produces are bought and sold. The <ORG> is entitled to levy market fee and recover the same from the buyers and sellers through <ORG>. Indisputably, <ORG> and the <ORG> have power to appoint officers and servants. Although, the power of the <ORG> in this respect is not circumscribed, that of <ORG> is. <ORG> can appoint only such number of secretaries and other officers as may be necessary for efficient discharge of its functions. Terms and conditions of such services are to be provided by it. Section 19 of the Act, however, imposes further restriction on the power of <ORG> by limiting the annual expenditure made in this regard not exceeding 10% of the total annual receipt of the <ORG>.

The appointments for different classes of employees are to be made by the <ORG> and the officers, as the case may be, in terms of the provisions of the regulations.

Both the Services Regulations and the Establishment Regulations, as noticed hereinbefore, are applicable respectively to the employees of the <ORG> as also the Market Committees. The said regulations provide for detailed procedure for appointment and the terms and conditions therefor. No appointment, thus, can be made in violation of the provisions of statute and statutory rules.

Submission of the learned counsel appearing on behalf of the employees is that the procedures prescribed by reason of the Regulations are applicable to the regular employees. It is so. The question which, however, falls for consideration is as to whether any appointment can be made de'hors the provisions of the Act and the rules. Our attention has been drawn to the definition of 'employee' which does not include persons employed on daily wages, work charged and/ or part-time basis. If the expression "employee" does not bring within its fold any person employed on daily wages, work charged or on part- time basis, the same would mean that the persons so appointed would not be the employees within the meaning of the said regulation. It would, therefore, not be correct to contend that <ORG> or the <ORG> have the jurisdiction to appoint anybody on daily wages, work charged or on part-time basis de'hors the rules. The power to make appointments by the committee or the board whether contained in Section 23 or Section 26-F of the Act are statutory in nature. In absence of any provisions conferred upon them to appoint any employee de'hors the provisions of Sections 23 and 26-F and the regulations framed thereunder, indisputably would mean that such appointments are de'hors the Act and the rules. The Rules also provide that any appointment made by the <ORG> under Sub-section (1) of Section 23 shall be intimated within 30 days of such appointment to the Director or to such other officer as may be authorised by the Director in this behalf. It implies that although <ORG> may have power to make appointments, such appointments can be made in relation to the posts created therefor by the <ORG> wherefor requisite intimation has to be given to the Director or the officer authorised in this behalf. We may assume that for meeting the exigencies of situations it may be possible for the <ORG> or the <ORG> to appoint a person on adhoc basis. Such adhoc employees, however, being not employee within the meaning of the provisions of the Act and the Regulations, a legal relationship between the employer and the employee would not come into being. As no legal relationship of employer and employee comes into being, evidently, such persons do not derive any status. They a fortiori derive no legal right to continue in service subject, of course, to the compliance of the provisions of any other Act or the rules conferring certain benefits to them. [ <CITATION> ] Sections 23 and 26-F of the Act categorically mandate that all appointments must be made in terms of the provisions of the regulations. The terms and conditions of such services are also required to be prescribed by the regulations, the logical corollary whereof would be that permanent status is required to be given to a person who is not otherwise an employee of the <ORG> or the Market committee, as the case may be. It is required to be done in terms of the regulation only.

The <ORG> is entitled to take a decision which is within its powers and functions delineated by the Act. A decision by way of resolution or otherwise cannot be taken by the <ORG> which is beyond the scope and purview of the Act and the regulations framed thereunder.

The <ORG>, therefore, was bound to make a regulation if it intended to put the respondents on its rolls. <ORG>, as noticed hereinbefore, however, was of the opinion that it was not necessary so to do. For the reasons aforementioned, we do not agree.

POWER OF STATE TO ISSUE DIRECTIONS The <ORG> in exercise of its power conferred upon it could issue directions. The power of the <ORG> Government is confined to issue directions on question of policy. It cannot, however, interfere in the day to day functionings of the <ORG>. Such policy decision, however, must be in relation to the activities of the <ORG> under the Act and not de'hors the same. [See <NAME> (supra), <NAME> (supra) and <CITATION> 2005 (8) SCALE 80] Such a decision on the part of the <ORG> Government must be taken in terms of the constitutional scheme, i.e., upon compliance of the requirement of Article 162 read with Article 166 of the Constitution of India. In the instant case, the directions were purported to have been issued by an officer of the <ORG>. Such directions were not shown to have been issued pursuant to any decision taken by a competent authority in terms of the Rules of Executive Business of the <ORG> framed under Article 166 of the Constitution of India.

<CITATION> , [], this Court held:

"The said circular letter has not been issued by the State in exercise of its power under Article 162 of the Constitution of India. It is not stated therein that the decision has been taken by the <ORG> or any authority authorized in this behalf in terms of Article 166(3) of the Constitution of India. It is trite that a circular letter being an administrative instruction is not a law within the meaning of Article 13 of the Constitution of India. ( <CITATION> )"

However, it is not correct that the power of the <ORG> to issue directions must be confined to the matters enumerated in Sub-section (1) of Section 26-L of the Act. Section 26-L is subject to the provisions of the Act. The functions of the <ORG> enumerated in Section 26-L of the Act are, therefore, not exhaustive. Appointment of servants and officers are also one of the functions of the <ORG>. The <ORG> also has right to supervise and control the activities of the officers and <ORG>. In that view of the matter, if a policy decision is taken by the <ORG> in regard to the appointment or terms and conditions of the servants, in the event, regulations made in this behalf do not contain any provisions, such policy decision must conform to the directions of the <ORG> issued in that behalf, if any. The <ORG> further is empowered to do such other things as are specified in clause

(x) of Section 26-L of the Act.

The <ORG>, however, in law could not have abdicated its power in favour of <ORG>.

We are, therefore, of the opinion that the direction by the <ORG> was strictly not in accordance with law.

The directions of the <ORG> were, therefore, although not binding on the <ORG>, the same cannot be said to be wholly irrational. In his report dated 7.1.1998, the Chairman of the <ORG> sought for advice of the <ORG>. The <ORG> had the power of supervision over the activities of the officers of the <ORG> and the <ORG> itself. While granting such advice, the <ORG> had taken into consideration the last segment of employment. The <ORG> was not expected to direct the <ORG> and the <ORG> in turn could not have directed <ORG> to dismiss all the employees who have been illegally appointed. If such directions had been confined to the period 1.4.1996 to 30.10.1997 on following certain basic principles like last-come- first-go-basis, we do not see any reason as to why the same would be termed to be arbitrary or discriminatory.

NATURAL JUSTICE If the employees are workmen within the purview of the U.P. Industrial Disputes Act, they are protected thereunder. Rules 42 and 43 of the U.P. Industrial Disputes Rules provide that before effecting any retrenchment in terms of the provisions of Section 6-N of the U.P. Industrial Disputes Act, the employees concerned would be entitled to a notice of one month or in lieu thereof pay for one month and 15 days wages for each completed year service by way of compensation. If such a retrenchment is effected under the Industrial Disputes Act , the question of complying with the principles of natural justice would not arise. The principle of natural justice would be attracted only when the services of some persons are terminated by way of a punitive measure or thereby a stigma is attached. [ <CITATION> , para 16, <CITATION> , , paras 4 and 5 and <CITATION> , paras 4 and 5] <CITATION> [], it was held:

"The principle of natural justice, it is trite, is no unruly horse. When facts are admitted, an enquiry would be an empty formality. Even the principle of estoppel will apply. [ <CITATION> principles of natural justice are required to be complied with having regard to the fact situation obtaining therein. It cannot be put in a straitjacket formula. It cannot be applied in a vacuum without reference to the relevant facts and circumstances of the case."

<ORG>, therefore, must be held to have erred in law in holding that the principles of natural justice were required to be complied with.

DIRECTIONS OF <ORG> The directions of <ORG>, in our opinion, were not justified. It may be that in implementing the advice of the <ORG>, some of the officers of the <ORG> became overzealous in terminating services of the employees who were appointed prior to 1.4.1996. The learned Single Judge of <ORG> was not, therefore, correct in describing a decision of the <ORG> an arbitrary or a discriminatory one. No sufficient or cogent reason has been assigned by the learned Single Judge to arrive at a finding that such period has been picked up out of the hat. With a view to judge the correctness or otherwise of such a decision, it was necessary to consider the backdrop thereof. We have noticed hereinbefore the contents of the correspondences passed between the parties. When the advice of the Chief Minister and/ or the <ORG> was sought for, the Chief Minister wanted the details of such appointment made within the last six months. However, at a later stage, the validity or otherwise of the appointments made by the Directors of the <ORG> on different periods had been taken into consideration. It is only upon application of mind on the facts and circumstances of this case that a direction was issued on 17.3.1999 by the <ORG>.

REGULARISATION The direction of <ORG> to frame scheme for regularisation of the employees as also the resolution of the Board to regularise the services of the employees who had completed one thousand days of service must be considered having regard to the aforementioned legal position in mind.

When questioned, Mr. <NAME> and Mr. <NAME> submitted that regularisation would mean permanence. Regularisation of the services of an employee would, therefore, mean that the concerned persons who had no status within the purview of the definition of 'employee' would become employee. Thus, a change in the status would be effected.

An attempt to induct an employee without following the procedure would be a backdoor appointment. Such backdoor appointments have been deprecated by this Court times without number. [See for example <ORG> v. <ORG> (1992) 4 SCC 99, para 23] Even in <CITATION> [], whereupon the learned counsel for the parties relied upon, it is stated:

"Ordinarily speaking, the creation and abolition of a post is the prerogative of the <ORG>. It is the <ORG> again that lays down the conditions of service subject, of course, to a law made by the appropriate legislature. This power to prescribe the conditions of service can be exercised either by making rules under the proviso to Article 309 of the Constitution or (in the absence of such rules) by issuing rules/instruct-ions in exercise of its executive power. The court comes into the picture only to ensure observance of fundamental rights, statutory provisions, rules and other instructions, if any, governing the conditions of service. The main concern of the court in such matters is to ensure the rule of law and to see that the <ORG> acts fairly and gives a fair deal to its employees consistent with the requirements of Articles 14 and 16"

A 3-Judge Bench of this Court upon taking into consideration a large number of decision in <CITATION> [] held that illegal appointments cannot be regularised. It was further held:

"No regularisation is, thus, permissible in exercise of the statutory power conferred under Article 162 of the Constitution if the appointments have been made in contravention of the statutory rules."

The power to frame regulations is expressly conferred on the Board in terms of Section 26 of the Act. Such regulations are to be made with the previous approval of <ORG>. Indisputably, <ORG> by its letter dated 17.3.1999 refused to accord permission in relation thereto.

If no appointment could be made by the <ORG> in exercise of its power under Article 162 of the Constitution of India as the same would be in contravention of the statutory rules, there cannot be any doubt whatsoever that the <ORG> or for that matter <ORG> cannot make an appointment in violation of the Act and the Regulations framed thereunder.

In Executive Engineer, ZP Engg. Divn. <CITATION> [], it was held:

"It may not be out of place to mention that completion of 240 days of continuous service in a year may not by itself be a ground for directing an order of regularisation. It is also not the case of the respondents that they were appointed in accordance with the extant rules. No direction for regularisation of their services, therefore, could be issued. ( <CITATION> , <ORG> and <NAME> v. State of J&K) Submission of Mr <NAME> to the effect that keeping in view the fact that the respondents are diploma-holders and they have crossed the age of 40 by now, this Court should not interfere with the impugned judgment is stated to be rejected."

[See also <CITATION> , ] <CITATION> [], it was categorically held:

"The question, therefore, which arises for consideration is as to whether they could lay a valid claim for regularisation of their services. The answer thereto must be rendered in the negative. Regularisation cannot be claimed as a matter of right. An illegal appointment cannot be legalised by taking recourse to regularisation. What can be regularised is an irregularity and not an illegality. The constitutional scheme which the country has adopted does not contemplate any back-door appointment. A <ORG> before offering public service to a person must comply with the constitutional requirements of Articles 14 and 16 of the Constitution. All actions of the <ORG> must conform to the constitutional requirements. A daily-wager in the absence of a statutory provision in this behalf would not be entitled to regularisation. ( <CITATION> and <CITATION> .)"

<CITATION> [], <NAME> (supra) was followed holding that in law 240 days of continuous service by itself give rise to permanence which reason has weight with the opinion of learned Single Judge of <ORG>.

It is, therefore, not correct to contend that only because in the correspondences between the <ORG> and the <ORG> the appointments of such persons have been described to be irregular, the same would not mean that they are not illegal.

In any event, no temporary or permanent status can be granted to an employee by way of regularisation. [ <CITATION>  and <CITATION> ].

PRECEDENTS Mr. <NAME> has relied upon a large number of decisions to contend that this Court has directed framing of such schemes.

<CITATION> [], the writ petitioners were appointed as trainee engineers pursuant to an advertisement issued therein. Representations have been made to them that after their training was completed, they would be absorbed in regular employment of the <ORG>. Some employees who were getting age-barred for government employment and had left the <ORG> were told to come back under the temptation of getting permanently employed under the <ORG>. When the <ORG> was reeling under a strike of its employees, these trainee engineers stood by the <ORG> to keep up the generation and distribution of electricity and had been assured of absorption. The <ORG> had decided to absorb them on permanent basis but initially on a probation of two years without conducting any further examination. It was in aforementioned situation, this Court applied the principles of promissory estoppel and observed that the <ORG> should have regularized the services of the trainee engineers. The Court did not lay down any law that regularization would be directed despite the fact appointments had been made in violation of the rules.

In <NAME> (supra), this Court was beset with the scheme framed by the <ORG> to regularize the services of its employees. The Bench did not go into the question of validity or otherwise of such a scheme. We have, however, noticed hereinbefore that even such a scheme would be impermissible in law.

In <NAME> and Others etc. v. <ORG> and Others [AIR 1988 SC 2133], this Court was dealing with a matter where the State Government had come forward with orders from time to time for absorption of work charged employees. The Court was of the opinion that the benefits conferred thereunder were available to them.

<CITATION> [] yet again no law has been laid down. No decision other than <NAME> (supra) has been referred to. Before this Court, a scheme was submitted in terms whereof the scheme had undertaken to regularize work- charged employees employed prior to 19.9.1985. This Court besides the proposals made therein issued certain other directions.

Strong reliance has been placed by Mr. <NAME> on <CITATION> . [(1972) 2 SCR 799] for the proposition that irregular employees can be regularized. Therein it was held:

"The contention on behalf of the <ORG> that a rule under Article 309 for regularisation of the appointment of a person would be a form of recruitment read with reference to power under Article 162 is unsound and unacceptable. The executive has the power to appoint. That power may have its source in Article 162. In the present case the rule which regularised the appointment of the respondent with effect from February 15, 1958, notwithstanding any rules cannot be said to be in exercise of power under Article 162. First, Article 162 does not speak of rules whereas Article 309 speaks of rules. Therefore, the present case touches the power of the <ORG> to make rules under Article 309 of the nature impeached here. Secondly when the Government acted under Article 309 the Government cannot be said to have acted also under Article 162 in the same breath. The two articles operate in different areas. Regularisation cannot be said to be a form of appointment.

Counsel on behalf of the respondent contended that regularisation would mean conferring the quality of permanence on the appointment whereas counsel on behalf of the <ORG> contended that regularisation did dot mean permanence but that it was a case of regularisation of the rules under Article 309. Both the contentions are fallacious. If the appointment itself is in infraction of the rules or if it is in violation of the provisions of the Constitution illegality cannot be regularised. Ratification or regularisation is possible of an act which is within the power and province of the authority but there has been some non-compliance with procedure or manner which does not go to the root of the appointment. Regularisation cannot be said to be a mode of recruitment. To accede to such a proposition would be to introduce a new head of appointment in defiance of rules or it may have the effect of setting at naught the rules."

The said decision has been noticed in various judgments referred to hereinbefore. It instead of helping the Respondents goes directly against them.

<CITATION> [1991 Supp (2) SCC 643], this Court was confronted with various interim orders passed by <ORG> from time to time in several writ petitions. It was observed that if the direct recruitment takes place on one hand and substituted teachers are also directed to be regularized subsequently, it would create an enormous problem for the department to accommodate both the categories of persons and in the aforementioned situation, in exercise of its power under Article 142 of the Constitution of India, this Court with a view to avoid further litigation and also to avoid seemingly conflicting interim orders issued by <ORG> gave certain directions. Such directions having evidently been issued by this Court in exercise of its power under Article 142 of the Constitution of India do not constitute a binding precedent. Even therein, the scope and ambit of this Court's jurisdiction under Article 142 vis-`-vis existence of the statue and statutory rules and the constitutional mandate contained in Articles 14 and 16 of the Constitution of India had not been taken into consideration.

On the other hand, in a series of decisions, which we have noticed hereinbefore, this <ORG> has now firmly laid down the law that regularization cannot be a mode of appointment.

OTHER CONTENTIONS Mr. <NAME> has placed strong reliance upon the provisions of the U.P. Regularisation of Adhoc Appointments (on Posts Outside the Purview of the Public Service Commission) Rules, 1979 purported to have been framed by the State in pursuance of the provisions of Clause (3) of Article 348 of the Constitution of India. Rule 4 of the said Rules reads, thus:

"4. Regularisation of ad hoc appointments  (1) Any person who

(i) was directly appointed on ad hoc basis on or before June 30, 1998 and is continuing in service as such on the date of commencement of the Uttar Pradesh Regularisation of Ad hoc Appointments (On Posts Outside the Purview of the Public Service Commission) (Third Amendment) Rules, 2001.

(ii) possessed requisite qualifications prescribed for regular appointment as the time of such ad hoc appointment; and

(iii) has completed or, as the case may be, after he has completed three years service shall be considered for regular appointments in permanent or temporary vacancy, as may be available, on the basis of his record and suitability before any regular appointment is made in such vacancy in accordance with the relevant rules or orders.

(2) In making regular appointments under these rules reservations for the candidates belonging to the Scheduled Castes, Scheduled Tribes, Backward Classes and other categories shall be made in accordance with the orders of the <ORG> in force at the time of recruitment.

(3) For the purpose of sub-rule (1) the appointing authority shall constitute <ORG>. (4) The appointing authority shall prepare an eligibility list of the candidates, arranged in order of seniority, as determined from the date of order of appointment and if two or more persons are appointed together from the order in which their names are arranged in the said appointment order, the list shall be placed before <ORG> along with the character rolls and such other records of the candidates as may be considered necessary to assess their suitability. (5) <ORG> shall consider the cases of the candidates on the basis of their records referred to in sub-rule (4).

(6) <ORG> shall prepare a list of the selected candidates, the names in the list being arranged in order of seniority, and forward it to the appointing authority."

Apart from the fact that such contention has not been raised before <ORG> as also in the counter-affidavit filed before us, the provisions of the said rules by no stretch of imagination can be said to be applicable in the instant case.

Submission of Mr. <NAME> to take recourse to Regulation 29 of the Establishment Regulations providing that in regard to the matters not specifically covered by the rules persons appointed to the services of the <ORG> shall be governed by the regulations applicable generally to the <ORG> employees is misconceived.

The said submission of Mr. <NAME> is furthermore inconsistent with his submissions, as noticed supra, that even in terms of Section 26-M of the Act, <ORG> had no power to issue any direction governing appointment in respect of terms and conditions of the services of the employees. Persons who may be appointed to the services of the Board, furthermore, even according to the learned Counsel appearing on behalf of the Respondents, are those who are regular employees having been appointed in terms of the provisions of the Act and the Regulations framed thereunder. We have, therefore, no doubt in our mind that Regulation 29 of the Establishment Regulations which is in Chapter VII of the Act refers to only such regulations and orders which would be applicable to the regular employees.

The fact that all appointments have been made without following the procedure or services of some persons appointed have been regularised in past, in our opinion, cannot be said to be a normal mode which must receive the seal of the court. Past practice is not always the best practice. If illegality has been committed in the past, it is beyond comprehension as to how such illegality can be allowed to perpetrate. The <ORG> and the <ORG> were bound to take steps in accordance with law. Even in this behalf Article 14 of the Constitution of India will have no application. Article 14 has a positive concept. No equality can be claimed in illegality is now well- settled. [ <CITATION> ,, para 8, <CITATION> , para 13 and <CITATION> , para 30].

In the instant case, furthermore, no post was sanctioned. It is now well-settled when a post is not sanctioned, normally, directions for reinstatement should not be issued. Even if some posts were available, it is for the <ORG> or <ORG> to fill-up the same in terms of the existing rules. They, having regard to the provisions of the regulations, may not fill up all the posts.

It may be that from the very inception the provisions of the Act and the Regulations framed thereunder had been given a complete go-by. It, furthermore, may be that the <ORG> had adopted resolution for purported regularization of the services of its employees and employees of Market Committees appointed prior to 1.10.1988. We have, however, noticed hereinbefore that such a resolution on the part of the <ORG> was beyond its domain. It is also true, as has been contended by Mr. <NAME> and Mr. <NAME>, that the power to create posts was with the <ORG> but the <ORG> did not exercise its power nor the competent authorities of <ORG> proceeded to appoint employees on the sweet will of the concerned authorities without in any way bothering for the provisions of the Act and the Rules framed thereunder. It is interesting to note that <ORG> claimed themselves to be local authorities for the purpose of obtaining exemption from payment of income tax. The officers of the local authorities had a bounden duty not only to act within the four-corners of the statute but having regard to the constitutional scheme in mind. They failed and/ or neglected to do so. As appointments had been made de'hors the rules and without following the procedures known in law and in flagrant violation of constitutional scheme as laid down in Articles 14 and 16 of the Constitution of India, the appointments although might have been made in exigencies of services, they must be held to be wholly illegal and without jurisdiction. An attempt has been made by the Respondents to show that the income of <ORG> has increased from Rs. 1.92 crore to Rs. 210.88 crores and the quantum of construction work has also increased from Rs. 65.8 crores to Rs. 128.4 crores. It has also been suggested that in November, 2005, the income has increased in the year 2004-05 to Rs. 400 crores and the annual budget of <ORG> which has been sanctioned is approximately Rs. 350 crores. The availability of funds is not and cannot be a valid ground to make the appointments of persons without proper sanction and creation of posts and cannot be taken to be an excuse to perpetuate illegalities.

A contention has been raised by Mrs. <NAME> that there was no material before the <ORG> for issuing the impugned instructions insofar as the financial position vis-`-vis the strength of the employees had been taken into consideration. It is not necessary for us to go into the aforementioned question inasmuch as we are herein concerned with the legality and/ or validity of the impugned orders of termination of services and the same having not been done, the appointment of the concerned employees were wholly illegal and without jurisdiction and, thus, void and of no effect.

CONCLUSION The upshot of our aforementioned discussions is:

(i) The <ORG> and the Market Committees were bound by the Act, the Rules and Regulations framed thereunder in making appointments. Statutory provisions as also the constitutional requirements were required to be complied with.

(ii) The <ORG> had no jurisdiction to frame any scheme for regularization in the pith of the statutory regulations operating in the field. Any legislation involving appointment or laying down the conditions of service of the employees would require prior sanction of the <ORG>.

(iii) The State of Uttar Pradesh in exercise of its purported power under Section 26-M of the Act could not have issued the directions as it has been done but such a direction cannot be said to be wholly unreasonable.

(iv) The State although could not exercise a statutory power beyond the provisions of the statute but the same although might have been done under a misconception of law but was not otherwise arbitrary or mala fide.

(v) Availability of vacancies and/ or the fund by themselves would not allow <ORG> or the <ORG> to make appointments in flagrant violation of the statutory provisions. Although the direction of the State of U.P. which had been acted upon by the <ORG> did not have a statutory backing, <ORG> could not have issued a writ of or in the nature of mandamus as the writ petitioners  Respondents did not have any legal right.

(vi) We are not oblivious of the fact that there may be some employees whose services have been terminated without any rhyme or reason. Mr. <NAME> appearing on behalf of the <ORG> has assured us that the <ORG> shall look into cases of such employees whose termination has been effected beyond the policy decision taken by the <ORG> although we do not intend to express any opinion as regards such employees.

We, however, direct the <ORG> and <ORG> to fill up all existing vacancies strictly in accordance with law as expeditiously as possible and preferably within six months from date. While doing so, amongst other eligible candidates, the candidature of the employees whose services have been terminated should also be taken into consideration and in the event, the appropriate authority of <ORG> or the <ORG> can relax the age-bar, the same would be done. The respective <ORG>, however, in the meanwhile, if for exigencies of the work, intend to appoint any person, it may do so. However, post facto approval therefor should be obtained from the <ORG>. In the offers of appointment which may be issued to such temporary or ad hoc employees it shall be made clear that their appointments would be ad hoc in nature and the same shall be co-terminus with the appointment of regular employees.

In view of our findings aforementioned, we are of the opinion that the judgment and order dated 11.8.2000 passed by the learned Single Judge which has been upheld by the Division Bench by its order dated 5.9.2000 does not lay down the law correctly and the judgment and order dated 13.11.2000 passed by a Division Bench of the Lucknow Bench of <ORG> in Writ Petition No. 1093 (S/B) of 1999 lays down the law correctly. In the result, Civil Appeal arising out of SLP(C) No. 15797 of 2001 is dismissed and other civil appeals filed by the <ORG> and the State of Uttar Pradesh as also civil appeal arising out of SLP(C) No. 15677 of 2003 filed by the <ORG> are allowed. However, there shall be no order as to costs.