JUDGMENT

1. Special Leave granted. Intervenor's application filed in Special Leave Petition No. 6121 of 1990 is also allowed.

2. This appeal concerns with the problem of regularisation of substituted/ad hoc teachers in <ORG> of the State of Manipur. They have been in service for the past several years. <ORG> however has refused to regularise their services, instead they took steps for direct recruitment. The services of the members of the appellants' association were also sought to be terminated. Thereupon the appellants moved <ORG> for relief under Article 226 for staying the direct recruitment and also seeking a direction to regularise their services. <ORG> issued a rule nisi in the writ petition but refused to grant any interim relief.

3. This appeal has been preferred against the order of <ORG> denying the interim relief to the appellants. During the pendency of this appeal, there were some more writ petitions filed before <ORG>. In one of those cases, <ORG> has directed the D.P.C. to publish the result of the direct recruitment, and in another case, it appears that <ORG> has issued an order staying the direct recruitment.

4. It is said that there are more than one thousand substituted teachers who have been recruited from 1981-82. It appears that they were allowed to appear before the <ORG> for direct recruitment and in that process 23 of them were selected by the <ORG> for direct recruitment, but they could not also be regularly appointed in view of the stay order of <ORG>.

5. If the direct recruitment takes place on one hand and substituted teachers are also directed to be regularised subsequently, it would create an enormous problem for the department to accommodate both the categories of persons. Taking all these factors into consideration, this Court made an order dated 2nd May 1990 directing <ORG> to consider the case of regularisation of the appellants before making direct recruitment. But the Government did not take any action. On 9th October, 1990 the Court made a further order to implement the, order dated 2nd May 1990 within two weeks from that date failing which the Secretary, <ORG> should be present personally for facing contempt proceedings. Pursuant thereto, the Secretary of <ORG> is personally present before us today.

6. Mr. <NAME>, learned Senior Advocate appeared for the <ORG>. He also explained the genesis of the case and the problem of the <ORG> for regularising the services of all the substituted teachers. Having heard counsel on both sides, it appears to as that it is necessary to make the following order to avoid further litigation and also to avoid seemingly conflicting interim orders issued by <ORG>.

1. All substituted/ad hoc teachers who have put in five years of service or more as on October 1, 1990 shall be regularised without pay D.P.C. This regularisation would be subject to their possessing the required qualifications at the time of their initial appointment.

2. The substituted/ad hoc teachers who have rendered less than five years of service as on October 1, 1990 shall be allowed to appear before the <ORG> for selection. The <ORG> shall be constituted exclusively for them within three months from today. Those who are selected by the <ORG> shall be regularised immediately thereafter.

3. Twenty three substituted/ad hoc teachers who have been already selected by the <ORG> shall be regularly appointed forthwith retaining their present seniority.

4. All the substituted/ad hoc teachers who ace in service as on today shall be allowed to continue in service till the <ORG> declares its result of the selection. The services of those who do not appear before <ORG> or could not be selected by the <ORG> could be terminated unless their services are required for a further period.

5. It is said that the <ORG> earlier convened has selected some persons for direct recruitment. If there are additional vacancies in addition to those which are being occupied by the substituted/ad hoc teachers, they may straightway be appointed against those vacancies and the remaining if any may be appointed after the <ORG> completes the, process of selection of substituted/ ad hoc teachers for regularisation depending upon the vacancy position.

6. As to the seniority between the direct recruits and the regularised candidates, we make it clear that the direct recruits other than those mentioned in Para (3) above, shall be ranked below all the regularised candidates.

7. This order shall govern all those who are in service as substituted/ad hoc teachers. It shall also govern all pending litigations before <ORG> or any other <ORG>. The concerned parties shall move <ORG> or the <ORG> to dispose of the pending litigations accordingly.


JUDGMENT

1. The main question for decision in this appeal is whether an auction-purchaser under a decree which has been, after confirmation of the sale, set aside as the result of a separate suit) can recover his purchase-money from the decree-holder. If the answer is in the affirmative, as we think it must be, there is a subsidiary, question as to whether his remedy is by application under Section 47 or 144 of the Civil Procedure Code or by a separate suit.

2. The appellant <NAME> is the auction-purchaser. The decree under which the sale was held was a decree for sale on the basis of a mortgage executed in favour of the respondents by one <NAME>. <NAME> formed a joint family with his minor grandson <NAME>. The respondents brought a suit for sale on the basis of their mortgage in the year 1917 impleading <NAME> and <NAME>. In this suit they obtained a preliminary decree for sale on 1st June 1917. The decree was made final on 22nd January 1918. The property was put up for sale on 22nd April 1919 and purchased by the appellant for Rs. 660. The appellant was a stranger to the suit. The sale was confirmed under Order XXI, Rule 92 on 24th May 1919.

3. Unfortunately for themselves, the respondents made <NAME> guardian ad litem of, his grandson, thereby debarring the latter from pleading that the mortgage was not for legal necessity. The result was that <NAME> through another person as next friend afterwards brought a suit against the respondents decree-holders and the auction-purchaser for a declaration that neither the mortgage, nor the sale decree, nor the auction-sale held thereunder were binding on him. The suit was decreed in his favour on 14th August 1919 in respect of all the three declarations asked for. Armed with this decree <NAME> was successful in ousting the appellant from possession of the property. On an application under, Section 144 of the Civil Procedure Code in the original mortgage suit possession was restored to him on 24th August 1920. The auction-purchaser then made the present application for refund of the price which he had paid. It was filed as an application Under Section 47 of the Civil Procedure Code in the original mortgage suit brought by the respondents, but the applicant subsequently asked that if the application was held not to come under Section 47, it should be treated as a separate suit under the provisions of Sub-section (2) of that section.

4. The Courts below dismissed the application. Both Courts have held that Section 47 is inapplicable and the lower <ORG> has held on the authority of <CITATION> 2 that no separate suit to recover the amount could he entertained. We think that the ruling in question is clearly distinguishable. That was a case in which property was sold in execution of a simple money-decree. A third party subsequently came forward and claimed that the property which had been sold belonged to him and to the judgment-debtor. His suit was decreed and the auction-purchaser was deprived of the property. The ruling relies on the principle that there is no warranty of title at an auction sale and that what was sold was merely the right, title and interest of the judgment-debtor and that the purchaser took the risk that the judgment-debtor's title might turn out to be defective. No question was ever raised, or could be raised as to the validity of the decree under which the sale was held. Here the facts are altogether different. <NAME> claimed and obtained a declaration that cot merely the sale but the decree and the mortgage on which t was based were void and of no effect as against him. The decree-holders have, therefore, obtained from the auction-purchaser, under an in valid decree, money to which they have no right, and there is a clear equity in favour of the purchaser entitling him to recover it back. It is a well-established principle that the auction-purchaser is not bound to look beyond the decree. If a decree is in existence he is entitled to assume that it is a valid decree. This was laid down by <ORG> in <NAME> v. <NAME> 13 I.A. 106 : 14 C. 18 : 4 Sar. P.C.J. 746 : 10 Ind. Jur. 428 : 7 Ind. Dec. (N.S.) 13 (P.C.). In the law were otherwise, a purchase at an execution sale would be reduced to the merest gamble. A distinction between a defect on the judgment-debtor's title to the property sold and the case where there was no jurisdiction to sell the property is recognised in the well-known case of <CITATION> 51. A. 116 : 3 C. 806 : 2 C.L.R. 529 : 3 Suth. P.C.J. 519 : 3 Sar. P.C.J. 818 : 2 Ind. Jur. 426 : 1 Ind. Dec. (N.S.) 1097 (P.C.).

5. In a recent case in which a sale was set aside by a separate suit and the judgment-debtors were restored to possession of the property, their lordships of <ORG> held that the auction-purchasers were entitled to recover from the judgment-debtors purchase-money which has been paid in satisfaction of debts of the latter. They quoted with approval the judgment of Cairns, L.C, in <NAME> v. Comptoir D' Escompte de Paris (1871) 3 P.C. 465 at p. 475 : 7 Moo. P.C. (N.S.) 314 : 40 L.J.P.C. 1 : 24 L.T. 111 : 19 W.R. 449 : 17 E.R. 120, that one of the first and highest duties of all <ORG> is to take care that the act of the <ORG> does no injury to any of the suitors and they pointed out that the auction-purchasers had parted with their purchase-money and paid it into <ORG> on the faith of the order of confirmation and certificate of sale, and were entitled to be re-paid.

6. It has been argued for the respondents that the decree was not wholly set aside but was only set aside in so far as it affected <NAME>. The result was substantially to set aside the decree altogether. The decree was for sale of joint family property on a mortgage executed by the manager, it being found that the manager had no right to encumber the property, the decree for sale fell wholly to the ground, and the successful plaintiff was entitled to recover and did in fact recover the entire property. This argument, therefore, is of no avail to the respondents. The latter have obtained money to which they were not entitled under a decree and sale which were invalid and they are bound in equity to restore it to the appellant.

7. The question whether the application conies under Section 47 or 144 of the Civil Procedure Code is one of some difficulty. The words 'varied or reversed' used in Section 144 seem more applicable to a proceeding by way of appeal, revision or review than to a separate suit declaring that a decree is not binding on a particular party. <ORG> has however held in <CITATION> 33 Ind. Cas. 739 : 40 M. 299 : 3 L.W. 236 : (1916) 1 M.W.N. 155 : 30 M.L.J. 366 : 19 M.L.T. 235 that the section is applicable where a decree is set aside as the result of a subsequent proceeding. In the auction-purchaser can be regarded as the representative of the judgment-debtor whose interest he purported to acquire, the question is prima facie one coming under Section 47. It is a question relating to the satisfaction of a decree, for it alleges that money has been wrongfully applied in satisfaction of the decree. There is the authority of the Full Bench of <ORG> in <CITATION> 54 Ind. Cas. 209 : 43 M. 107 : (1919) M.W.N. 881 : 26 M.L.T. 391 : 38 M.L.J. 32 (F.B.) for the view that a stranger purchaser at Court auction is entitled and bound to have any question relating to the satisfying of the decree decided under Section 47. The learned Judges refer to and follow the decision of <ORG> in <NAME> v. <NAME> 19 C. 683 : 19 I.A. 166 : 6 Sar. P.C.J. 209 : 9 Ind. Dec. (N.S.) 898 (P.C.) which laid down that the Courts in India were right in not placing a harrow construction on the language of Section 244 (now Section 47) of the Civil Procedure Code and that the fact that a purchaser was interested in the question in dispute had never been held to be a bar to the application of the section. In <ORG> a contrary view has been taken <CITATION> 46 Ind. Cas. 113 : 42 B. 411 : 20 Bom. L.R. 495 but it was admitted that the Bombay view was contrary to the decisions of both the Allahabad and Calcutta High Courts. In a recent Pull Bench of this Court in <CITATION> 65 Ind. Cas. 813 : 44 A. 266 : 20 A.L.J. 105 : (1922) A.I.R. (A) 200 it was suggested, if not definitely held, that even a question between a judgment-debtor and an auction-purchaser, who had failed to deposit the 25 per cent. of the purchase-money required by Order XXI, Rule 84, came within the provisions of Section 47. We think, therefore, that we are entitled to treat this application as coming within the provisions of that section. Even if we were rot so satisfied, we should have been prepared to grant the relief asked for on the analogy of Section 144 in exercise of our inherent power under Section 151 of the Code. There is admittedly no question outstanding between the patties except that which has been decided in this appeal and to require the question to be now tried out in a regular suit would be merely to put the parties to unnecessary expense.

8. For the reasons already given, we allow c the appeal and give the appellant a decree for the amount claimed against the respondents decree-holders with costs in all <ORG>, including in this <ORG> fees or the higher scale, if any.


JUDGMENT <NAME>, J.

1. Rule, by consent returnable forthwith. Counsel appearing on behalf of the Respondents waives service. By consent of Counsel and at their request taken up for hearing and final disposal.

2. In this batch of petitions, a decision arrived at by <ORG> on 10th June 2005 of declining to enhance the management quota for admissions at professional institutions established and administered by minorities, from 50% to 100% of the total intake has been called into question. The <ORG> was set up by <ORG> in pursuance of the decision of <ORG> in <CITATION> , . The three institutions in question in the three petitions before the <ORG>, provide instruction in Architecture, Pharmacy and Management Sciences. None of the institutions is in receipt of grant-in-aid from <ORG> or <ORG>. There is no dispute before the <ORG> about the position that these three institutions have been established and are being administered by a religious minority consisting of persons who practice and profess <ORG>.

3. The judgment of <ORG> in <CITATION> ,  was delivered on 31st October 2002. The Constitution Bench of <ORG> delivered judgment in <CITATION> ,  on 14th August 2003. On 16th February 2004, <ORG> issued a resolution by which the management quota for all minority run educational institutions in the State was fixed at 50%.

4. Upon the constitution of the <ORG>, the Petitioners filed appeals in order to press their claim for the enhancement of the management quota to cover all the admissions at these institutions. On 19th August 2004, the <ORG> maintained the quota for the Academic Year 2004-05 since the admissions process had reached an advanced stage, reserving liberty to the institutions to apply for an enhancement of the quota during the next Academic Year. Accordingly, appeals were filed on 30th November 2004 in order to challenge the <ORG> Resolution of 16th February 2004. On 19th March 2005, the <ORG> rejected appeals filed by the <ORG> and reiterated that the management quota for the Academic Year 2005-06 shall continue to remain at 50%. The <ORG> was of the view that since the issue was pending before a Bench of seven Learned Judges of <ORG>, it should not intervene at that stage. Subsequently, on 25th April 2005, the <ORG> decided to have a fresh look at the management quota for minority institutions and allowed the institutions to submit data regarding (i) the number of seats or the strength of admissions during the previous two years; (ii) the number of applications received; (iii) the number of admissions granted; (iv) allotment of students received from the <ORG>; and (v) information in respect of local needs. The Petitioners thereupon submitted by a letter dated 27th April 2005, data reflecting the seats which were filled up against the management quota during the Academic Years 2003-04 and 2004-05, the names of candidates who had applied for admissions and the candidates who could not be eventually admitted. This data was submitted to the <ORG> in support of the contention of the Petitioners that the management quota was inadequate to meet the needs and requirements of these minority institutions and the religious minorities concerned. By a decision arrived at on 10th June 2005, the <ORG> declined to revise the quota and maintained the management quota at 50% for minority institutions.

5. The submission which has been urged in support of these petitions is that the <ORG> has furnished no reason whatsoever for declining to accede to the request made by the managements for the enhancement of the management quota. It has been submitted that though data was produced by all the three institutions, demonstrating that the quota which had been allowed was inadequate to meet the needs of the institutions and of the Muslim minorities, leaving out in the process a number of unaccepted applicants, the <ORG> has not applied its mind to the data produced before it on the record. Moreover, it was urged that the committee has not had regard to the principles which were laid down by the Supreme Court in its decisions in <ORG> (supra) and in <ORG> (supra).

6. In <ORG> v <ORG> of Karnataka, (supra) <ORG> held that unaided professional institutions are entitled to autonomy in their administration but, at the same time, they must not forgo or discard the principle of merit. <ORG> held that it was open to the University or <ORG> while granting recognition to require a private unaided institution to provide for meritbased selection while giving the management a sufficient discretion in admitting students. For instance, a certain percentage of the seats can be reserved for admission by the management out of those students who have passed the Common Entrance Test held by itself or by the <ORG> or University and have applied to the college concerned for admission while the rest of the seats may be filled up on the basis of counseling by the <ORG> agency. The Court held that the prescription of percentage for this purpose has to be done by <ORG> according to local needs and different percentages can be fixed for minority unaided and non-minority unaided and professional colleges. In the concluding part of the judgment of the majority delivered by the Hon'ble the Chief Justice, Mr. Justice <NAME>, one of the questions that was framed for determination was thus:

"Q.4. Whether the admission of students to minority educational institution, whether aided or unaided can be regulated by <ORG> or by the university to which the institution is affiliated?"

While deciding upon this issue, <ORG> held that the right to admit students being an essential facet of the right of religious and linguistic minorities to administer educational institutions of their choice under Article 30 of the Constitution, <ORG> or the <ORG> may not be entitled to interfere with that right so long as admissions to unaided educational institutions are on a transparent basis and merit is adequately taken care of. <ORG> held that even an aided minority institution does not cease to be a minority institution upon the receipt of aid and it would be entitled to admit students belonging to its own minority while at the same time being required to admit a reasonable extent of non-minority students. What would constitute a reasonable extent would vary, having regard to the type of the institution, the course of education for which admission is sought and other factors like educational needs.

7. The judgment of <ORG> in <ORG> was thereafter, considered in the subsequent decision of <ORG> in <CITATION> , . <ORG> held that the observation in para 68 of the majority judgment in <ORG> made it clear that the same yardstick cannot be applied to minority and non-minority professional colleges. The Court noted that in the case of non-minority professional colleges, a "certain percentage of seats" can be reserved for admission by the management. However, in the case of minority run professional institutions, the expression "different percentage" had been used. The two expressions did not have the same connotation. <ORG> held thus:

"The expression "different percentage for minority professional institutions" carries a different meaning than the expression "certain percentage for unaided professional colleges". In fixing the percentage for unaided minority professional colleges the <ORG> must keep in mind, apart from local needs, the interest/need of that community in the <ORG>. The need of that community, in the <ORG>, would be paramount vis-a-vis the local needs.

8. The attention of the <ORG> has also been drawn to a subsequent order of the Supreme <ORG> dated 15th July 2004 in P.A. Inamdar and <ORG>. v. <ORG> of Maharashtra and <ORG>. (SLP (Civil) No. 9932 of 2004 and connected matters). A Bench of the Supreme <ORG> consisting of Mrs.Justice <NAME> and Mr. Justice <NAME> has observed that prima facie, the phrase "their need" in the decision in <ORG> referred to the need of the institutions and not of the <ORG>.

9. We have adverted to these binding principles which have been laid down by <ORG> since, it is on the basis of these principles that the prescription of the management quota must be arrived at by <ORG>. The <ORG> has been set up in pursuance of the directions issued by <ORG> in para 19 of its decision in <ORG>. Para 19 of the judgment contains the following observations which must govern the decision making process of the <ORG>:

"It is clarified that different percentage of quota for students to be admitted by the management in each minority or nonminority unaided professional college(s) shall be separately fixed on the basis of their need by the respective State Governments and in case of any dispute as regards fixation of percentage of quota, it will be open o the management to approach the Committee."

10. There is merit in the submission which has been urged on behalf of the Petitioners that the <ORG> having not furnished any indication of reasons in its decision should be requested to reconsider its decision in the light of the principles of law which have been laid down by <ORG>. Each of the institutions before the <ORG> has submitted data in support of its application for enhancement of the percentage in the management quota. This data will have to be considered by the <ORG> in the light of the principles enunciated by <ORG>. We, therefore, request the <ORG> to reconsider the matter and in order to facilitate a fresh determination, we set aside the impugned decision dated 10th June 2005. Having regard to the urgency of the matter, we request the <ORG> to expedite its decision. Since admissions have to be completed at an early date, the <ORG> is requested to render its decision by 19th July 2005. In the meantime, having regard to the fact that <ORG> has on 15th July 2004 in its order passed in P.A. Inamdar and Ors. v. State of Maharashtra and Ors. (SLP (Civil) No. 9932 of 2004 together with connected matters), allowed a management quota of 75%, we direct the State of Maharashtra at the present stage to fill up 25% of the total seats in the three institutions before the <ORG>. The final distribution of the quota shall abide by the order that may be passed by the <ORG> on reconsideration in the light of this judgment.

11. The petitions are accordingly disposed of. In the circumstances of the case, there shall be no order as to costs.


PETITIONER: BAREILLY DEVELOPMENT AUTHORITY & <ORG>. Vs. RESPONDENT: AJAI PAL SINGH & ORS. DATE OF JUDGMENT17/02/1989 BENCH: <NAME>, S.R. (J) BENCH: <NAME>, S.R. (J) OZA, G.L. (J) CITATION: 1989 AIR 1076 1989 SCR (1) 743 1989 SCC (2) 116 JT 1989 (1) 368 1989 SCALE (1)439 ACT: U.P. Urban (Planning and Development) Act , 1973: S.4 Bareilly Development <ORG>--Construction of dwelling units--Whether entitled to revise cost of houses/flats and rate of monthly instalments-Applicants whether entitled to assail the action of the <ORG> in writ petition. Constitution of India, 1950: Articles 12, 14, 32 & 226--Bareilly Development <ORG>--Whether other authority for purpose of Article 12-- Construction of flats and dwell- ing units--Cost of flats/rate of instalment revised on allotment--Whether amenable to writ jurisdiction. HEADNOTE: The appellant-<ORG> offered to register names of intending applications desirous of purchasing LIG, MIG, HIG and EWS type houses/flats. The 'General Information Table' given in the brochure indicated the type of houses, corre- sponding income groups, cost, initial payment to be made, rate of interest and approximate monthly instalments. Note (1) under the said table stated that the cost shown therein was only estimated cost and it would increase or decrease according to the rise or fail in the price at the time of completion of the houses, while Note (2) stated that the date given therein could be amended as felt necessary. By clauses 12 and 13 contained in the brochure the <ORG> reserved its discretion to change, alter or modify any of the terms and/or conditions of the allotment as and when necessary. All the respondents registered their names for allotment of the flats in accordance with the terms and conditions in the brochure and made the initial deposit. Subsequently, they received notices from the <ORG> intimating the revised cost of houses and the amount of monthly instalment rates which were almost double of those initially stated in the 'General Information Table'. The respondents were fur- ther informed that those who intend to buy houses on the revised price/instalments must send their written acceptance by the date specified other-wise their claims would not be included in the lots to be drawn. Except a few, all other respondents gave their unequivocal and unconditional written consent. Hence their names were included in the 743 744 draws and on becoming lucky in the draw, they were allotted their respective houses. At this stage. all the respondents approached <ORG> under Article 226 of the Constitution challenging the revised terms and conditions on the ground that the appel- lants were estopped from changing the conditions subject to which the respondents had applied for registration and deposited the initial payment, that the enhancement of cost of the house amounting to almost double of the estimated cost as shown in the brochure and the increase of the month- ly instalments were much beyond their means and that this arbitrary and unilateral stand of the appellants was to the prejudice of the respondents. These petitions were resisted by the appellants by contending that the respondents were estopped from challenging the varied terms and conditions of the allotment after having consented. <ORG> found the action of the <ORG> in fixing the revised cost and instalments arbitrary and unrea- sonable and directed the appellant-<ORG> to re-determine the cost of the flats and instalments payable by them after hearing the parties. In these appeals by special leave it was contended for the appellant-<ORG> that the income of the applicants was relevant only to determine the category of the scheme in which they had to be included for eligibility to get a house under the scheme but not for enhancement of the cost of the house and monthly instalments, that it had fixed the cost of the houses and the rate of instalments after taking into consideration the escalation in the price of building mate- rial, labour charges, cost of transport and allied valuable factors which all enter into the price fixation, that in price fixation the executive has a wide discretion and it is only answerable provided there is any statutory control over its policy of price fixation, and that after the parties had entered into the field of ordinary contract, as in the instant case. the relations were no longer covered by the constitutional provisions but by the legally valid contract which determines the rights and obligations of the parties inter se Allowing the appeals, HELD: 1. Where the contract entered into between the <ORG> and the persons aggrieved is non-statutory and purely contractual and the rights are governed only by the terms of the contract, no writ or order can be issued under Article 226 of the Constitution of India so as 745 to compel the authorities to remedy a breach of contract pure and simple. [755C] <CITATION> .,  3 SCR 249; Premji Bhai Parmar & Ors. etc. v. Delhi Development <ORG> & Ors.  2 SCR 704 and D.F.O.v. Biswanath Tea Company Ltd.,  3 SCR 662 referred to. The respondents in the instant case had voluntarily registered themselves as applicants only after fully under- standing the terms and conditions of the brochure, inclusive of cls. 12 and 13 and Notes 1 and 2 of the General Informa- tion Table under which the <ORG> had reserved its right to change the terms and conditions as and when felt neces- sary evidently depending upon the escalation of the prices. The <ORG> did not compel anyone of the applicants to purchase the flat at the rates subsequently fixed by it and pay the increased monthly instalments. On the contrary the option was left over only to the allottees. All the same, the respondents gave their written consent unconditionally accepting the changed and varied terms and conditions. [753H;754A-C] The respondents after accepting the conditions imposed by the <ORG> had thus entered into the realm of a con- cluded contract pure and simple with the <ORG> and hence they could only claim the right conferred upon them by the said contract and were bound by the terms of the contract unless some statute stepped in and conferred some special statutory obligations on the part of the <ORG> in the contractual field. The contract between the respondents and the <ORG> did not contain any statutory terms and/or conditions. [754C-E] Even conceding that the <ORG> had the trappings of a <ORG> or would be comprehended in 'other authority' for the purpose of Article 12 of the Constitution, while determining price of the houses flats constructed by it and the rate of monthly instalments to be paid, the 'authority' or its agent after entering into the field of ordinary contract had acted purely in its executive capacity. Thereafter the relations were no longer. governed by the Constitutional provisions but by the legally valid contract which determined the rights and obligations of the parties inter-se. In this sphere, they could only claim rights conferred upon them by the contract in the absence of any statutory obligations on the part of the <ORG> in the said contractual field. [754G-H; 755A- <CITATION> 746 of India & Ors., AIR 1979 S.C. 1628. <ORG> while exercising its jurisdiction under Article 226 of the Constitution had, therefore, gone wrong in its finding that there was arbitrariness and unreasona- bleness on the part of the appellants in increasing the cost of the houses/flats and the rate of monthly instalments, and giving directions in the writ petitions as prayed for. [755D-E] JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2809- 2812A of 1986.

From the Judgment and Order dated 6.2.1986 of <ORG> in Civil Misc. W.P. Nos. 2274, 2983, 3860, 4558 and 3202 of 1984.

<NAME> and <NAME> for the Appellants. <NAME>, <NAME>, <NAME> and <NAME> for the Respondents.

The Judgment of the Court was delivered by <NAME>, J. These five appeals by Special Leave under Article 136 of the Constitution of India are preferred against the Judgment and Or, let dated 6.2.86 passed by <ORG> in Civil Misc. Writ Petition No. 2274/84 connected with Civil Misc. Writ Peti- tion Nos. 2983/84, 3860/84, 4558/84 & 3202/84 directing the respondents (appellants herein) to re-determine the cost of the appellants' (respondents herein) flats and instalments payable by them after hearing their grievances. Since identical contentions are urged in all the ap- peals, we are rendering a common judgment. As it is said that Civil Appeal No. 2809/86 arising out of Civil Misc. Writ Petition No. 2274/84 is more comprehen- sive and the facts alleged therein may be taken as represen- tative in character, the facts relating to this appeal are briefly stated.

<ORG> (hereinafter re- ferred. as '<ORG>'), the first appellant was constituted under Section 4 of the U.P. Urban Planning and Development Act , 1973 by <ORG> for the purposes of development in the District of Bareilly., With a view to casing the acute housing problem in the said District, the <ORG> has undertaken construction of dwelling units for people belonging to different income groups styled as 'Lower Income Group', 'Middle Income Group', 'High Income Group' and the 'Economically Weaker Sections' (hereinafter referred as <ORG>, <ORG>, <ORG> and EWS respectively). The <ORG> issued' an advertisement offering to register names of intending applicants desirous of purchas- ing dwelling houses/flats in any one of the different income groups intended to be constructed by the <ORG>. In this appeal i.e. Civil Appeal No. 2809/86, the respondents 1 to 17 and 20 got themselves registered for allotment of flats in <ORG> scheme and respondents 18 and 19 in <ORG> scheme with the <ORG> in accordance with the terms and conditions contained in the brochure issued by the <ORG>. The following table of the brochure shows the necessary details inclusive of the esti- mated cost for the different types of flats under various categories:

Type of Range of Cost Initial Interest Approx House Income payment monthly instalment MIG Rs. 1000 to Rs.64,000 Rs.5000 12% Rs.551 p.m. for Rs. 1500 p.m. 15 yrs.

HIG Rs. 1500 and Rs. 1, 15,000 Rs.7000 12% Rs. 1440 above p.m. p.m. for 10 yrs.

LIG Rs.351 to Rs.35,000 Rs.2000 11% Rs.345 p.m. for Rs. 1000 p.m. 15 yrs. <ORG> Rs.350 p.m. Rs. 11,000 Rs, 100 7% Rs.89 p.m. for 20 yrs.

The note under the 'General Information Table' given in the said brochure states that the cost shown therein is only estimated cost and it would increase or decrease according to the rise or fail in the price at the time of completion of the houses/flats.

All the respondents registered.their names' for <ORG>, <ORG> and <ORG> flats as the case may be and made the initial deposit. Thereafter, the respondents in <ORG> group received indentical notices dated 19/20.1.84 from the Secretary, <ORG> (second appellant) intimating that the revised cost of houses/flats of <ORG> group as well as the amount of monthly instalment would be as follows:

1. No. of houses available 77

2. Cost of the house Rs. 1,27,000 3. Down payment to be made/ Rs.35,000 paid on allotment 4. No. of monthly instalment 180 fixed for the payment of remaining amount 5. Rate of yearly interest 13.5%

6. Amount of monthly instalment Rs. 1,031.50 with interest.

By the said notice, the respondents in MIG group were informed that 40% of the houses/flats mentioned in the notice would be given to the allottees who would deposit the entire cost in one cash payment and that the other allottees who intend to buy houses/flats on the above revised price/instalments must send by 28.1.84 their written accept- ance on the annexed proforma to <ORG> of the office of the <ORG> otherwise their claims would not be included in the lots to be drawn on 31.1.1984. Except the respondents Nos. 13, 17, 18 and 20, all other respondents in reply to those notices gave their unequivocal and uncondi- tional written consent. Hence their names were included in the draw and on being lucky in the draw, the respondents barring the above 4 were allotted their respective houses. After allotment, they were asked to complete the other formalities and make down payments in accordance with the notice. dated 19/20.1.1984, by a further notice dated 3.2.1984 (Annexure 'F'). Similar notices were issued to all the registered allottees for all types of houses and the respondents were also intimated that in case any of the registered persons does not want to purchase the house, his name would not be included in the draw but he would have his choice later on.

At this stage, all the respondents in these appeals approached <ORG> under Article 226 of the Constitu- tion of India challenging the revised terms and conditions of the <ORG> on the ground that the petitioners were estopped from changing the conditions subject to which the respond- ents-applicants had applied for registration and deposited the initial payment in the year 1980; that the enhancement of cost of the house/flat amounting almost double of the estimated cost as shown in the brochure while inviting the applications and the increase of the monthly instalments are much beyond the means of the respondents and that this arbitrary and unilateral stand of the petitioners is to the prejudice of the respondents. On the above contentions, the respondents prayed in their respective petitions for issue of writ of mandamus directing the petitioners to maintain the allotment of the flats in their favour on the original terms and conditions, to hand over the possession of the same and further to restrain the petitioners from cancelling the original allotment. The above plea was resisted by the petitioners strongly relying on certain conditions contained in the brochure especially of clauses 12 and 13 as per which the <ORG> has reserved its discretion to change, alter or modify any of the terms and/or conditions of the allotment given in the brochure; that its decision would be final with regard to any matter concerning the registration and allot- ment and that the <ORG> has right to relax any condition in its discretion. It has been further contended that respond- ents barring 13, 17, 18 and 20 have given their written acceptance to the changed conditions as mentioned in the notice dated 19/20.1.1984 and as such they are not entitled to the reliefs claimed in the writ petition. According to the petitioners the increase in the cost and the interest demanded from the respondents is neither arbitrary nor unreasonable and <ORG> is not the proper forum for examining in detail the terms regarding payment of instal- ments in the circumstances of the present case, and if the respondents were not agreeable to the changed terms and conditions, they could as well resile from their consent. Finally, it was contended that the respondents are estopped from challenging the varied terms and conditions of the allotment after having consented.

<ORG> though repelled the contention of the respondents (allottees) based on the principle of promissory estoppel, made the following observations with regard to the case of the respondents in the MIG category:

"In the circumstances of the present case the fixation of monthly instalment to the tune of Rs.1031.50 from the petitioners of MIG group whose income is hardly Rs. 1500 per month appears to us smack- ing of arbitrariness and unreasonableness on the part of the contesting opposite party (petitioners herein)";

"In the circumstances of the present case, we are not satisfied that the contesting opposite party has succeeded in establishing its demand of double the estimated cost by facts and figures. The end of justice demands that the authority should refix the cost of the peti- tioner's flats after hearing their grievance."

<ORG> answered the objections taken by the petitioners herein that the respondents have consented for the changed terms and conditions observing, "We think that the consent obtained from the petitioners was also not reasonable act on the part of the contesting opposite par- ties (appellants herein)". Finally, <ORG> adopting the above reasoning in respect of the cases of other re- spondents also falling under various categories directed the appellants herein in all the writ petitions "to re-determine the cost of the petitioners' (respondents herein) flats and instalments payable by them after heating their grievances."

Being aggrieved by the impugned judgment the appellants have filed these appeals by special leave.

<NAME>, St. Adv. after taking us through the relevant documents and the additional affidavit filed by the second respondent and the reply affidavit assailed the reasonings given by <ORG> contending that the said Court has erroneously held that the <ORG> has failed to justi- fy the demand of the enhancement in the cost of houses/flats as well as the increase of the monthly instalments in dis- proportionate to their income, because the income of the applicant was relevant only to determine the category of the scheme in which the applicant had to be included for eligi- bility to get a house/flat under the scheme but not for enhancement of the cost of the houses/ flats and monthly instalments. According to him since the declared policy of the <ORG> being 'No Profit No Loss', it had fixed the cost of the houses/flats and the rate of instalments after taking into consideration of the escalation of the building materi- al, labour charges, cost of transport and the allied valu- able factors which all enter into the price fixation, and as such <ORG> is not correct in going into the ques- tion of computation of cost of the construction of houses/flats and the plea of clerical mistakes exercising its jurisdiction under Article 226 of the Constitution of India. He further submits that <ORG> has gone wrong in importing the principle laid down in <NAME> v. <ORG>, AIR 1979 <ORG> 1628 to the present facts and circumstances of the case in view of the fact that in price fixation the execu- tive has a wide discretion and it is only answerable provid- ed there is any statutory control over its policy of price fixation and it is not the function of <ORG> to sit in judgment over such matters of economic policy. It has been vehemently urged that after the parties have entered into the field of ordinary contract, the relations are no longer covered by the constitutional provisions but by the legally valid contract which determines the rights and obligations of the parties inter-se.

The fact that all respondents had applied for registra- tion only on acceptance of terms and conditions contained in the brochure inclusive of Clauses 12 & 13 as well as the conditions mentioned in the Notes 1 and 2 of the 'General Information Table' of the said brochure, and further the respondents barring respondents Nos. 13, 17, 18 and 20 in MIG group gave their reply accepting the changed terms and conditions as per letter dated 19/20.1.1984 cannot be chal- lenged in view of the unassailable documentary evidence namely Annexures 'A', 'D', 'E' and 'F'.

Now, we shall reproduce some of the relevant conditions of the brochure as well as the changed conditions contained in the letter dated 19/20.1.1984. Clauses 12 and 13 of the brochure issued by the <ORG> and the notes 1 and 2 of the General Information Table thereto read thus:

Clause 12 For allotment by lottery all the above-men- tioned terms and rules given in the booklet would ordinarily be followed but <ORG> will have the right to change, enhance or amend any of the terms and/or condition as and when it thinks necessary and at its discretion.

Clause 13 The decision of <ORG> in regard to any matter in relation to the regis- tration application will be final. It would have the right to relax any of the conditions at its discretion. The fight to sell by auc- tion the <ORG> and <ORG> plots/houses or any portion thereof, of the various schemes, will also vest in <ORG>.

General Information Table Note: (1) The cost shown in the column 4 is only estimated cost. It will increase or decrease according to the rise or fall in the price at the time of completion of the property.

Note: (2) The data given in the above mentioned table can be amended as felt neces- sary.

The last paragraph of the letter dated 19/20.1.84 (Annexure 'D') reads thus:

"If you want to buy the house on the above price/instalment then you must send by 28.1.1984 your written acceptance on the annexed proforma to <ORG> of this office."

It may be mentioned here that in this letter (Annexure 'D'), the <ORG> has informed the allottees of MIG about the enhancement of the cost of the houses/flats as well as the increase of the monthly instalment and the rate of yearly interest etc. and requested the allottees to give their written acceptance so that their names could be included in the list.

The respondents except the four above have sent their written acceptance to the letter (Annexure 'D'). For a better appreciation of the case of the appellants, we think that as an example the letter (Annexure 'E') of the first respondent in this case namely <NAME> may be reproduced:

"I, <NAME>, S/o <NAME> want to take a Middle Income Group house in the Housing Scheme No. 2 situated at Tibrinath of <ORG> on payment by instalment. I have seen the house and am satisfied. I accept the rules of <ORG>."

Only on the basis of the written acceptance, the name of the first respondent was included in the draw and he has successful in getting the allotment of House No. 37 in <ORG> type which fact if clearly borne out by the letter from the second respondent (Annexure 'F'). In this connection, it is worthwhile to note that the first respondent, <NAME> is the Principal of <ORG> and his educational qualifications are M.A. (Econ. & Hist.), B.Sc., B.Ed., LL.B. From the above, it is clear that all the respondents who have sent their applications for registration with initial payment only after having fully understood the terms and conditions of the brochure inclu- sive of the Clauses 12 and 13 and Notes 1 and 2 of the General Information Table as per which the <ORG> has reserved its right to change, enhance or amend any of the terms and/or conditions as and when felt necessary, and also the right to relax any of the conditions at its discretion, and that the cost shown in the column 4 of the brochure was only estimated cost subject to increase or decrease according to the rise or fail in the price at the time of completion of the property. This is not only the case of the applicants of <ORG> scheme but also of the other applicants falling under the other categories i.e. <ORG>, <ORG> and <ORG>. So it cannot be said that there was a mis-statemennt or incorrect statement or an fraudulent concealment in the information supplied in the brochure published by the <ORG> on the strength of which all the applicants falling under the various categories applied and got their names registered. In such a circum- stance the respondents cannot be heard to say that the <ORG> has arbitrarily and unreasonably changed the terms and conditions of the brochure to the prejudice of the respond- ents.

More so, the respondents barring respondent Nos. 13, 17, 18 and 20 after having given their written consent accepting the changed and varied terms and conditions as shown in the letter dated 19/20.1.84 are not justified in contending that the <ORG> has gone back on its original terms' and conditions and has substituted new conditions to their detriment. It is quite un-understandable that the persons like the first respondent who is highly educated, occupying the post of the Principal of a College and who has accepted the changed terms and conditions by his letter is making these allega- tions against the <ORG>.

The respondents were under no obligation to seek allot- ment of houses/flats even after they had registered them- selves. Notwithstanding, they voluntarily registered them- selves as applicants, only after fully understanding the terms and conditions of the brochure inclusive of Clauses 12 and 13 and Notes 1 and 2 of the General Information Table which we have reproduced above, they are now trying to obtain the houses/flats at the price indicated in the bro- chure at the initial stage conveniently ignoring the other express conditions by and under which the <ORG> has reserved its right to change the terms and conditions as and when felt necessary, evidently depending upon the escalation of the prices. One should not loose sight of the fact that the <ORG> did not compel anyone of the applicants to purchase the flat at the rates subsequently fixed by it and pay the increased monthly instalments. On the contrary, the option was left over only to the allottees. In fact, the respond- ents in Civil Appeal No. 2809 of 1986 except the four above mentioned have unconditionally accepted the changed terms and conditions.

Thus the factual position in this case clearly and unambiguously reveals that the respondents after voluntarily accepting the conditions imposed by the <ORG> have entered into the realm of concluded contract pure and simple with the <ORG> and hence the respondents can only claim the right conferred upon them by the said contract and are bound by the terms of the contract unless some statute steps in and confers some special statutory obligations on the part of the <ORG> in the contractual field. In the case before us, the contract between the respondents and the <ORG> does not con- tain any statutory terms and/or conditions. When the factual position is so, <ORG> placing reliance on the decision in <NAME> case (AIR 1979 SC 1628) has erroneously held:

"It has not been disputed that the contesting opposite party is included within the term 'other authority' mentioned under Article 12 of the Constitution. Therefore, the contesting opposite parties cannot be permitted to act arbitrarily with the principle which meets the test of reason and relevance. Where an author- ity appears acting unreasonably this <ORG> is not powerless and a writ of mandamus can be issued for performing its duty free from arbitrariness or unreasonableness."

This finding, in our view, is not correct in the light of the facts and circumstances of this case because in <NAME> case there was no concluded contract as in this case. Even conceding that the <ORG> has the trap- pings of a <ORG> or would be comprehended in 'other authori- ty' for the purpose of Article 12 of the Constitution, while determining price of the houses/flats constructed by it and the rate of monthly instalments to be paid, the 'authority' or its agent after entering into the field of ordinary contract acts purely in its executive capacity. Thereafter the relations are no longer governed by the constitutional provisions but by the legally valid contract which determines the rights and obligations of the parties inter-se. In this sphere, they can only claim rights conferred upon them by the contract in the absence of any statutory obligations on the part of the authority (i.e. <ORG> in this case) in the said contractual field.

There is a line of decisions where the contract entered into between the <ORG> and the persons aggrieved is non- statutory and purely contractual and the rights are governed only by the terms of the contract, no writ or order can be issued under Article 226 of the Constitution of India so as to compel the authorities to remedy a breach of contract pure and simple <CITATION> .,  3 SCR 249; Premji Bhai Parmar & Ors. etc. v. <ORG>,  2 SCR 704 and D.F.O. v. <ORG>,  3 SCR 662. In view of the authoritative judicial pronouncements of this Court in the series of cases dealing with the scope of interference of <ORG> while exercising its writ jurisdiction under Article 226 of the Constitution of India in cases of non-statutory concluded contracts like the one in hand, we are constrained to hold that <ORG> in the present case has gone wrong in its finding that there is arbitrariness and unreasonableness on the part of the appel- lants herein in increasing the cost of the houses/flats and the rate of monthly instalments and giving directions in the writ petitions as prayed for.

For the reasons hereinbefore stated, we set aside the judgment of <ORG> and accordingly allow all the appeals. There will be no order as to costs. Before parting with the judgment, we would like to observe that it is open to the respondents to approach the appellants for correction of any clerical mistakes in the calculation, if any and they are at liberty to move any proper authority for any remedy if they are otherwise legal- ly entitled to.

<ORG> al- lowed.


JUDGMENT <NAME>, J.

1. In this cross-reference, the <ORG> has referred to this court the following questions of law under section 256(1) of the Income-tax Act, 1961 :

At the instance of the <ORG> : (Assessment years 1975-76, 1976-77, 1978-79, and 1979-80) "Whether, on the facts and in the circumstances of the case, <ORG> was justified in holding that gratuity to the extent up to which it was exempt under section 10(10) of the Income-tax Act, 1961, should not be considered for the purpose of making the disallowance under section 40A(5) of the Income-tax Act, 1961 ?"

At the instance of the assessee : (common question for all the assessment years : 1975-76, 1976-77, 1977-78, 1978-79 and 1979-80) "Whether, on the facts and in the circumstances of the case and on a proper interpretation of the provisions of section 43 of the Income-tax Act, 1961, the <ORG> was justified in holding that the unabsorbed depreciation of Rs. 21,42,815, which was already deducted by <ORG>, in working out the written down value of its assets taken over by the assessee-company on amalgamation, should not be added back for the purpose of working out the written down value of those very assets in the hands of the assessee-company for determining the depreciation admissible on those assets ?"

At the instance of the assessee : (Assessment year 1978-79 only) "Whether, on the facts and in the circumstances of the case and on a proper interpretation of the provisions of section 40A(5) of the Income-tax Act, 1961, <ORG> was justified in holding that, in respect of salary paid to ex-employees, the allowance under that section should be restricted to the maximum of Rs. 60,000 ?"

At the instance of the assessee : (Assessment year 1979-80 only) "Whether, on the facts and in the circumstances of the case, <ORG> was justified in law in holding that the assessee-company was not entitled to value the stock taken over from <ORG>, on amalgamation in the same manner as was decided onne by <ORG>, while the closing stock was valued by the assessee-company in a different manner according to its method of valuation of stock followed year after year and, on that account, upholding the addition of Rs. 10,25,480, made by the Income-tax Officer ?"

2. For reasons given hereunder, we propose to reframe question No. 3 as under :

"Whether, on the facts and in the circumstances of the case, the <ORG> was justified in holding that the limit to the allowance of expenditure under section 40A(5)(c)(i) in the case of former employees was Rs. 60,000, and not Rs. 75,000, even though the previous year was of 15 months ?"

3. The question pertains to the assessment year 1978-79. The relevant previous year is of 15 months, i.e., from January 1, 1977, to March 31, 1978. Section 40A(5) provides that expenditure incurred by an assessee on its employees covered by that provision is not to be allowed beyond the limits prescribed by section 40A(5)(i) . The limit in the case of employees (existing/continuing) is Rs. 5,000 per month. In this year, it would be Rs. 75,000 as the previous year is of 15 months. In the case of former employees, however, the limit is stated to be Rs. 60,000. The assessee's claim is that former employees include such employees who ceased to be employees in the previous year or in any earlier year. In the case of the assessee, the former employees ceased to be the employees during the previous year. Some of them might well have worked, say, for 14 months. It will be inequitable if the limit of the expenditure on them is taken as Rs. 60,000. The maximum limit of expenditure in the case of former employees should be Rs. 75,000 for the previous year. This is the real controversy.

4. We propose to first deal with the first question referred to us at the instance of the assessee. This question is involved in all the years under reference. A company known as <ORG>, was amalgamated with the assessee-company in July, 1974, i.e., during the previous year relevant to the assessment year 1975-76. The depreciation allowance to the extent of Rs. 21,42,815 had remained unabsorbed in the case of that company as at the end of the previous year relevant to the assessment year 1974-75. For the assessment year 1975-76, the assessee-company claimed depreciation, inter alia, on the assets it took over from <ORG> Depreciation was claimed on the written down value of the assets. In view of Explanation 2A, the written down value was claimed to be on the basis of actual cost of those assets to <ORG>, less depreciation actually allowed to it, the expression "actually allowed" meaning the depreciation factually allowed and not merely computed and not given effect to in the assessments. Thus, while computing the written down value, the assessee did not reduce the actual cost further by the aforesaid amount of Rs. 21,42,815 which represented unabsorbed depreciation not given effect to. The Income-tax Officer, however, held that the "written down value" was required to be determined under section 43(6)(b) read with Explanation 2A and Explanation 3. Explanation 3, it was stated, provided that, for the purpose of arriving at the written down value, depreciation not merely actually allowed but also deperciation carried forward was to be treated as depreciation "actually allowed" for the purpose of clause (b) of sub-section (6) of section 43 . Accordingly, he determined the written down value by reducing from the actual cost not only depreciation actually allowed but also depreciation carried forward and allowed depreciation on that basis.

5. The Commissioner (Appeals) accepted the assessee's claim. The <ORG>, however, was of the view that, in view of the <ORG> decision in the case of <CITATION>  60 ITR 392, the meaning and intention of a statute must be collected from the plain and unambiguous expression used in the provision rather than on the basis of any notions. Accordingly, the <ORG> held that the written down value of the assets taken over by the assessee-company from <ORG>, was the actual cost of the assets to <ORG>, as reduced not only by the depreciation actually allowed but also the depreciation determined but not given effect to. The <ORG>, therefore, set aside the order of the Commissioner of Income-tax (Appeals) and restored that of the Income-tax Officer in this behalf.

6. Depreciation under section 32(1)(ii) of the Income-tax Act, 1961, is admittedly allowable and is allowed at a prescribed rate on the written down value of the assets. The expression "written down value" is defined in section 43(6) as the actual cost to the assessee if acquired during the previous year and the actual cost less all depreciation actually allowed if the assets are acquired in some earlier year, since the assets herein are taken over from <ORG>, it is common ground that Explanation 2A inserted in section 43(6) by the Finance (No. 2) Act, 1967, is applicable. Explanation 2A, admittedly, provides that, in such a sense, the written down value of the assets shall be taken to be the same as it would have been taken if <ORG>, had continued to hold the assets for its business. Explanation 3, it may be stated, provides that any allowance in respect of any depreciation carried forward under sub-section (2) of section 32 shall be deemed to be depreciation "actually allowed".

7. In order to appreciate whether and to what extent Explanation 3 is applicable in a case in which written down value is to be computed on account of the application of Explanation 2A, it is desirable to refer to the factual position in brief once again. <ORG>, which was amalgamated with the assessee-company in July, 1974, was assessed to income-tax up to and including the assessment year 1974-75. Depreciation to the extent of Rs. 21,42,815 had not been absorbed in that case for paucity of profits as laid down in section 32(2) of the Income-tax Act, 1961. The legal position about the unabsorbed depreciation is that it is not carried forward as such and is added to the depreciation for the following previous year and deemed to be part of that allowance. However, it is implicit in the scheme of section 32(2) that such a thing would happen only if the assessee continues to carry on its business in the following year or years. Thus, for the assessment year 1975-76, the aforesaid unabsorbed depreciation could not, under section 32(2) , be treated and /or allowed as the depreciation of the current year as <ORG>, became non-existent as a result of amalgamation. That is why the depreciation on these assets is claimed by and is allowable in the hands of the assessee only.

8. For this purpose, it is necessary to refer to the provisions of sections 32(1)(ii) , 32(2) and of section 43(6) which read as under :

"32. (1) In respect of depreciation of buildings, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions, shall, subject to the provisions of sections 34 , be allowed....

(ii) in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i), such percentage on the written down value thereof as may in any case or class of cases be prescribed :....

(2) Where, in the assessment of the assessee (or, if the assessee is a registered firm or an unregistered firm assessed as a registered firm, in the assessment of its partners), full effect cannot be given to any allowance under clause (i) or clause (ii) or clause (iv) or clause (v) or clause (vi) of sub-section (1) or under clause (i) of sub-section (1A) in any previous year owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less that the allowance, then subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73 , the allowance or part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years."

"43. In sections 28 to 41 and in this section unless the context otherwise requires - ....

(6) 'written down value' means -

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

(b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act , 1922, or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act , 1886 , was in force :......

Explanation 2A. - Where, in a scheme of amalgamation, any capital asset is transferred by the amalgamating company to the amalgamated company, and the amalgamated company is an Indian company, the written down value of the transferred capital asset to the amalgamated company shall be taken to be the same as it would have been if the amalgamated company had continued to hold the capital asset for the purposes of its business.

Explanation 3. - Any allowance in respect of any depreciation carried forward under sub-section (2) of section 32 shall be deemed to be depreciation 'actually allowed'."

9. It is pertinent to mention that Explanation 2A was inserted in section 43(6) by the Finance (No. 2) Act, 1967, whereas Explanations 1, 2 and 3 are there from the inception of the Income-tax Act , 1961. The main purpose of Explanation 3 appears to us to be to avoid an anomaly which would have otherwise resulted. Depreciation computed but not given effect to for paucity of funds is under section 32(2) allowable as deduction in the case of the same assessee as the depreciation of the following year or years, as the case may be, but for Explanation 3, written down value would have been the actual cost of the assets to the assessee less depreciation actually allowed. This would have resulted in certain anomalies. For instance, when depreciation is allowed not on the straight line method but on the basis of the written down value, depreciation of necessity becomes less and less in each successive year. But, if unabsorbed depreciation carried forward under section 32(2) is not taken into account for the purpose of computing the written down value, depreciation in the years in which carried forward depreciation remains unabsorbed for paucity of profits is likely to be the same. Secondly, when a depreciable asset is sold, discarded or destroyed, etc., in a previous year, the extent to which its scrap value falls short of the written down value is allowed under the Income-tax Act as deduction under section 32(1)(iii) . But for Explanation 3, an assessee would be entitled to deduction under section 32(1)(iii) on the basis of the written down value without taking into account the unabsorbed depreciation carried forward under section 32(2) , even though the assessee will be entitled to the set-off of the unabsorbed depreciation carried forward under section 32(2) . Thus, the object of Explanation 3 was to remove such anomalies.

10. However, this by itself does not justify the conclusion that Explanation 3 will not apply to a case of amalgamation covered by Explanation 2A. For that purpose, it would be necessary to examine the provisions of Explanation 3 closely. Explanation 3, no doubt. Creates a fiction. But the fiction is not created in vacuum. The fiction operates in a particular situation. That situation is a case in which any allowance in respect of any depreciation is carried forward under section 32(2) . Depreciation allowance can be said to be carried forward under section 32(2) when that allowance can be added to the depreciation allowance of the assessee for the following previous year and deemed to be part of that allowance.... and so on for the following previous years. In the present case, <ORG>, being no longer in existence by reason of its amalgamation with the assessee-company, the unabsorbed depreciation allowance of Rs. 21,42,815 is not carried forward under section 32(2) . Admittedly, this amount is not allowable as depreciation of the current year under section 32(2) in the hands of the assessee. Thus, the situation necessary for the application of the fiction in this case is not obtaining.

11. July 17, 1990 : Independent of Explanation 3, the written down value under section 43(6)(b) is the actual cost of the asset to an assessee less depreciation actually allowed, the expression "actually allowed" meaning, in view of the <ORG> decision in the case of <CITATION> . , not including notional allowance. Read with Explanation 3, it would mean the actual cost reduced both by depreciation actually allowed and depreciation nationally allowed, i.e., carried forward under section 32(2) . As stated earlier, Explanation 3 is not attracted as such in this case.

12. The case is, of course, covered by Explanation 2A. But for this Explanation. The written down value of the assets taken over by <ORG> the assessee during the previous year from <ORG>, would have been their actual cost to the assessee. In view of Explanation 2A, however, it will be the same as it would have been if <ORG>, had continued to hold the assets for its business. Thus, Explanation 2A creates a fiction whereby though in fact at the end of the previous year the assets are not held by <ORG>, the company having been amalgamated and, thus, ceased to exist, the said company will be deemed to hold the assets for its business. However, there is no further fiction created by Explanation 2A, that unabsorbed depreciation determined to the extent of Rs. 21,42,815 though actually not carried forward under section 32(2) , will be treated to be so for the purpose of Explanation 3. Under the circumstances, application of Explanation 2A does not automatically mean application of Explanation 3, the applicability of which depends upon the existence of a particular situation in which alone unabsorbed depreciation becomes depreciation "actuallowed"

13. In this context, it may not be out of place to mention that section 72A has been inserted in the Income-tax Act , 1961, by the Finance (No. 2) Act, 1977, with effect from April 1, 1978. The section provides for carry forward and set off of accumulated loss and unabsorbed depreciation in certain cases of amalgamation. The result is that in cases falling under section 72A , unabsorbed depreciation in the hands of the hands of the amalgamating company will hereafter be carried forward under section 32(2) in the hands of the amalgamated company. In such a case Explanation 3 will undoubtedly apply as the precondition for the application of the fiction will then exist.

14. Arguments were advanced by the parties in support of their rival claims as regards the scope of the legal fiction. It was admitted the Explanations 2A and 3 created legal fictions. In our view, the law in this regard is well-settled. A legal fiction has to be carried to its logical conclusion but only within the parameter of the purpose for which the fiction is created. Moreover, as far as possible, the legal fiction should not be given a meaning so as to cause injustice. It has been held by <ORG> in a number of cases that legal fictions are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond that purpose. As stated by us elsewhere, Explanation 3 is there in the Income-tax Act since its inception. Explanation 2A was inserted with effect from April 1, 1967. Thus, the object of Explanation 3 could not have been to cover cases falling within Explanation 2A. The object was to avoid the anomaly pointed out by us in the judgment elsewhere. In the circumstances, it will be in order if Explanation 3 is applied to a case covered by Explanation 2A only if the precondition for its application is found to exist and not otherwise. Even otherwise, applying the provisions of Explanation 3 to a case like the one before us in which allowance in respect of depreciation is not actually carried forward is likely to case injustice, accordingly, in our judgment, Explanation 3 is not attracted in the present case. In this view of the matter, it has to be held that the written down value of the assets in this case will be the actual cost of the assets to <ORG>, less depreciation actually allowed to the company. The unabsorbed depreciation which is not to be set off or carried forward should not be taken into account. That our construction of Explanation 3 is in consonance with the legislative intention is evident from clause 36(ii) of the Memo Explaining Provisions in the Finance (No. 2) Bill of 1967 in (1967) 64 ITR (St.) 188. The object of Explanation 2A is stated to be (at page 201) :

"As a corollary to the provision at (i) above, the actual cost, as also the written down value of the building, machinery, plant or furniture transferred by the amalgamating company to the amalgamated company will be taken, in the assessment of the amalgamated company, to be the same as in the case of the amalgamating company. Further, for the purpose of the provision in the Income-tax Act that the aggregate amount of depreciation allowed from year to year in respect of any asset will be limited to its actual cost, the depreciation actually allowed to the amalgamating company in the assets transferred by it to the amalgamated company will also be taken into account. In other words, when the aggregate of the depreciation allowed to the amalgamating company and the amalgamated company in respect of such assets is equal to the actual cost of the assets in the hands of the amalgamating company, the amalgamated company will not be entitled to any further depreciation on such assets."

15. That apart, the definition of the expression "written down value" is subject to "unless the context otherwise requires". Section 43 , it may be stated, while defining a number of expressions, makes it crystal clear that all definitions in that section are subject to the context requiring otherwise, in the circumstances, assuming we had come to the conclusion that the written down value of the assets in terms of section 43(6)(b) read with Explanation 2A and Explanation 3 is the actual cost of the assets reduced both by depreciation actually allowed and unabsorbed depreciation computed but not allowed, we might still have considered whether the context required some other equitable meaning of written down value.

16. In our judgment, the first question is also somewhat clumsily worded. However, the controversy is clear. Accordingly, we answer the first question in the 'assessee' reference in the negative and in favour of the assessee.

17. This takes us to the second question in the assessee's reference. The question has been reframed with a view to bring out the real controversy between the parties. The dispute is about the limit on the expenditure incurred by the assessee in relation to its former employee, the limit is prescribed under section 40A(5)(c)(i) which reads as under :

"(c) The limits referred to in clause (a) are the following namely :-

(i) in respect of the expenditure referred to in sub-clause (i) of clause (a), in the case of an employee, an amount calculated at the rate of five thousand rupees for each month or part thereof comprised in the period of his employment in India during the previous year, and in the case of a former employee, being an individual who cease or ceased to be the employee of the assessee during the previous year or any earlier previous year, sixty thousand rupees."

18. The sub-clause has two parts. The first part provides a limit on the expenditure in the case of existing or continuing employees. That limit is an amount calculated at the rate of Rs. 5,000 for each month or part thereof. The previous year being of 15 months, the limit of expenditure in the case of existing or continuing employees is thus Rs. 75,000. The limit under the second part is Rs. 60,000. This limit is in the case of expenditure incurred by the assessee on former employees irrespective of whether such former employees had or had not worked with the assessee as employees for any time during the previous year. Former employees are persons who ceased to be employees of the assessee during the previous year or any earlier previous year. Referring to the second part of the provisions of section 40A(5)(c)(i) , the <ORG> held that the <ORG> has fixed the ceiling over the allowable expenditure at Rs. 60,000 without reference to the period the former employees actually worked as employees with the assessee during the previous year. Accordingly, the <ORG> confirmed the disallowance made by the Income-tax Officer in this behalf.

19. On analysing the provisions of section 40A(5)(c)(i) , it appears to us that the fixation of the limit of Rs. 60,000 in the case of former employees without reference to the period during which the concerned persons were the assessee's employees during the previous year as against the limit at the rate of Rs. 5,000 per month in the per month in the case of existing employees is not without purpose. The purpose seems to be to take care of other payments that former employees were bound to receive by way of terminal benefits such as leave salary and gratuity. These payments were naturally expected to be over and above the remuneration for the period such persons worked as employees. That is why a straight limit of Rs. 60,000 was provided in their cases which was incidentally the limit in the case of continuing employees ordinarily. It was perhaps not in anybody's contemplation that a previous year could also be of 15 months. It may be that, for a period longer than 12 months, some of the former employees received remuneration as employees. To hold that in their cases also the limit will be Rs. 60,000 and not at the rate of Rs. 5,000 per month plus something is, to say the least, not equitable. It is not the case of the assessee in the present case that employees who became former employees during the previous year fell into two independent categories so that for the period they worked as employees, limit will be at the rate of Rs. 5,000 per month and for the amounts they received after they received after they ceased to be employees a separate limit of Rs. 60,000 will apply. It is, therefore, not necessary to examine that aspect in this case. What we are called upon to consider is whether, in the peculiar circumstances of the case, viz., where a previous year is of 15 months and where, in the case of a continuing employee, the ceiling may go up to Rs. 75,000, there is any good reason for not holding that the limit in the case of former employees should also be Rs. 75,000. In our judgment, in a case like the one before us the mere fact that the <ORG> fixed Rs. 60,000 as the limit in the case of former employees should not deter us from taking into account the act that the provision with regard to former employees as some of the former employees were likely to receive remuneration as employees at least for a part of the previous year and also terminal benefits. If that was so, and in our judgment it was so, there is no reason why the limit available to the existing employees should not be a limit in the case of former employees. Accordingly, we answer the second question at the instance of the assessee as reframed by us in the negative and in favour of the assessee.

20. This takes us to the third and the last question in the assessee's reference. This question relates to the assessment year 1979-80. During the previous year, another company by name <ORG>, was amalgamated with the assessee-company. As a result, almost all the assets of <ORG> company including the closing stock were taken over by the assessee-company, there is no dispute that the method of valuing the closing stock in the case of <ORG> company was different from the method of valuation of closing stock regularly followed by the assessee-company and that, if the method of valuation of closing stock followed by <ORG> company was also adopted by the assessee-company from <ORG> company was the assessee's opening stock, the <ORG> held that the assessee could not follow one method for valuing the opening stock and another method for valuing the closing stock, valuing the closing stock of the assessee out of the stock taken out from <ORG> company on the same basis as the stock was valued by <ORG> company. The <ORG> confirmed the addition of Rs. 10,25,480 as undervaluation of the stock.

21. We are told by <NAME>, learned counsel for the assessee, that the closing stock in dispute was not the assessee-company's opening stock as such. It was the stock the assessee-company had taken over from <ORG> company during the previous year at its book value. This fact is not disputed by <NAME> for the <ORG>. It was thus like a purchase of the stock by the assessee-company from <ORG> company at a particular price. In our view, the Income-tax Officer as well as the <ORG> fell into error in taking the said stock to be the opening stock of the assessee-company. In the circumstances, there is no question of applying the method of valuation applied to its stock by <ORG> company as regards this stock so far as the assessee-company is concerned. As regards the valuation of the closing stock, the assessee has admittedly valued it on the method which it is regularly following for valuing its closing stock. That being so. We do not think that the <ORG> was right in holding that there was undervaluation of stock and confirming the addition of Rs. 10,25,480. Accordingly, we answer the third question also in the negative and in favour of the assessee.

22. There is only one question of law involving assessment years 1976-76, 1976-77, 1978-79 and 1979-80 in the departmental reference. The question is whether, for the purpose of considering disallowance under section 40A(5) , the amount of gratuity in entirely or the amount in excess of the amount of gratuity exempt under section 10(10) alone is to be taken into account. For this purpose, it is desirable to refer to the provisions of section 40A(5) which reads as under :

"40A(5)(a) Where the assessee -

(i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or

(ii) incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purposes or benefit, then, subject to the provisions of clause (b), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in clause (c) shall not be allowed as a deduction :"

23. Gratuity is, admittedly, not an expenditure of the kind referred to in sub-clause (ii) and is an expenditure of the kind that may result in the payment of salary to the employee within sub-clause (i). The sub-clause evidently uses the expression "where an assessee incurs any expenditure resulting in the payment of any salary to an employee" This means that the amount of gratuity should result in the payment of salary to the employee. For this purpose, it is necessary to refer to the definition of the word "salary" in Explanation 2 to section 40A(5) itself :

Explanation 2. - In this sub-section, -

(a) 'salary' has the meaning assigned to it in clause (1) read with clause (3) of section 17 subject to the following modifications, namely :-

(1) in the said clause (1)...."

24. Thus, the word "salary" for the purpose of clause (i) has the meaning assigned to it in clause (1) read with clause (3) of section 17 subject to certain other modifications with which we are not concerned herein. Clause (1) of section 17 defines salary, it is an inclusive definition. Item (iii) thereof is "any gratuity" while item (iv), inter alia, is "profits in lieu of salary". The expression "profits in lieu of" is defined in clause (3) of section 17 . Item (ii) thereunder clarifies that what is included in the expression "profits in lieu of" is the amount other than any payment covered by certain provisions including section 10(10) . Having regard to item (iii) in clause (1) of section 17 , it may be arguable that salary for the purpose of section 40A(5)(a)(i) includes the entire amount of gratuity. However, when one considers that item (iv) thereof includes "profits in lieu of salary" and clause (3) of section 17 to the contrary particularly when the meaning assigned to "salary" is as per clause (1) read with clause (3) of section 17 . In our judgement, when there is a specific provision providing that payment other than a payment referred to in clause (10) of section 10 is "profits in lieu of" and thus a part of salary, it is not possible to accept that the entire amount of gratuity is to be treated as salary for the purpose of section 40A(5)(a)(i) . Accordingly, we hold that gratuity in excess of the exemption under section 10(10) alone is required to be considered for disallowance for the purpose of section 40A(5) .

25. It may be clarified that the assessee's case was not that gratuity was not at all includible as salary for the purpose of considering disallowance under section 40A(5) and we have not considered that question in the present reference, therefore, we answer the question referred to us at the instance of the <ORG> in the affirmative and in favour of the assessee.

26. No order as to costs.