LALAPPA LINGAPPA & ORS.

LAXMI VISHNU TEXTILE MILLS LTD., SHOLAPUR

February 11, 1981

(A. P. SEN AND E. S. VENKATARAMIAH, JJ,]

Payment of Gratuity Act 1972-Section 4(1)--Scope of-Permanent worker1 on unauthorised leave-On termination of services whether entitled to gratuity under section 4(1)-Badli workers-If entitled to gratuity for badli period on being made permanent.

C fVords ond phrases-"Continuous service"-"Actually e111ployed" and "actua~

ally worked" meaning of.

Interpretation of statutes-Sc 1cial welfare legislation-Principles of interpreta~ tion.

Gratuity is payable to an employee on the termination of his employment a[ter he has rendered continuous service under the conditions mentioned in section 4(1) of the Payment of Gratuity Act 1972.

The term "continuous service" has been defined in section 2(c) to mean uninterrupted service and includes service which is intenupted, ar11ong others, by leave or cessation of work not due to any fault of the employ,, e concerned. Explanation I to this section provides that an en1ployee, who is not in uninterrupted service for one year, shall be deemed to be in continuous service, if he has been actually employed by an employer during the twelve months immediately preceding the year for not less than 240 days except when he is employed in a seasonal establishment. Explanation II provides that an employee of a seasonal establishment shall be deemed to be in continuous service, if he has actually worked for not less than 15% of the number of days on which the establishment was in operation during that year.

Certain perm.anent employees of the respondent, on termination of their employment, made a claim for P'<Yment of gratuity in respect of every year during which they were in permanent employment irrespective of whether they had actually worked for 240 days or not.

On being made permanent the badli workers claimed gratuity in respect of the period prior to their being made permanent irrespective of whether in those years they had been actually employed for 240 days or not

The respondent, however, paid gratuity calculating the number of years in which they were actually employed for 240 days.

As regards the permanent employees, the Labour Coort held that they were governed by the substantive part of the definition of continuous service in section 2(c) npon the basis that there was no break in service; and as regards R the badli employees, it held that they were not entitled to gratuity in respect of the years in which they W<"e not actually employed for 240 days since they fell within Explanation I of section 2 ( c) of the Act.

The Appellate Authority upheld the view of the Labour Court.

On appeal, as regards the permanent employees the High Court held that unauthorised absence from work resulted in a break of service and, therefore, the employees were not in uninterrupted service and fell outside the substantive part of section 2(c) but came within Explanation I. As regards badli workers it upheld the view of the authorities.

In appeal it was contended that the permanent employees, even if they were absent without leave for a number of days in a year and had actually worked for less than 240 days due to absence without leave, were entitled to gratuity under section 4 (I) since the jural relationship of employer and employee continued during that period.

The badli employees on being made permanent became entitled to gratuity for the badli period because of the fact that they were re~ quired to report for work at the factory irrespective of whether they were provided with employment or not on any day.

Dismissing the appeal.

HELD : I. The High Court was right in holding that the permanent employees Were not entitled to payment of gratuity under section 4(1) for the years in which they remained absent without leave and had actually worked for less than

240 days in a year. [806 A]

The expression "actually employeed" used in Explanation I and "actually worked" used in Explanation II, having regard to the context and plll'p06e with which they were enacted, are synonymous. An employee, who is not in uninterrupted service for one year is deemed to be in continuous service, even though he falls outside the substantive part of the definition in section 2 ( c) provided he has been actually employed for 240 days in a year. In the case of seasonal establishments, however, it is difficult to predicate the number of days on \Vhich the establishment would be in operation in the year and an employee of such a seasonal establishment shall be deemed to be in continuous service, if he has actually worked for not less than 75% of the number of days on which the establishmen~ was in operation. [802 F-H]

The bad/i workers do not fall within the substantive part of the definition of "continuous service'', but are covered by Explanation I. They are, therefore, not entitled to payment of gratuity for the badli period i.e. in respect of the years in which no work was allotted to them due to their fallure to report to duty. Simply because a worker is required everyday to attend the mills for ascertaining whether work would be provided to him or not, he cannot be deemed to have rendered servic, e and would not, on that account, be entitled to claim gratuity. Gratuity is paid for services rendered. [807 C; 806 DJ

Delhi Cloth and General Mills Co. v. lts Workmen, [1969] 2 SCR 307 at 338, followed.

In construing a social welfare legislation, the Court should adopt a beneficient rule of construction. If a section is capable of two constructions, that construction should be preferred which fulfils the policy of the Act, and is more bene- H ficial to the persons in whose interest the Act has been passed. Where the language is plain and unambiguous the Court must give effect to it whatever may

A be the consequences. In that caso the words Of the statute speak the intention Of the legislature. The. argument Of inconvenience and hardship is a dangerous one and is only admissible in co:11Struction where the meaning of the statute is obscure and there are two meth<>is of construction. Jn their anxiety to advance

bneficient purpose of legislation,. the Courts must not yield to the temptation of seeking ambiguity when there; is none. [804 G-H)

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 436 of 1980.

Appeal by special leave from the Judgment and Order dated 1-9-1978 of the Bombay High Court in Special Civil Application No. 200/78.

AND

Civil Appeal No. 930 of 1980.

Appeal by special leave from the Judgment and Order of the President, Industrial-Court, Bombay (Appellate Authority appointed under Payment of Gratnity Act, 1972), in Appeal PGA Nos. 34/78 D and 36 to 119 /79.

R. S. Kulkarni, Mrs. V.?ena Devi Khanna and V. N. Ganpule for the Appellants and intervener.

F. S. Nariman, B. N. Srikrishna, R. P. Kapur, H. S. Parihar and Shardul S. Shroff for the Respondents ..

The Judgment of the Court was delivered by

SEN, J.-The controve:rsy in these two appeals by special leave against a judgment of the Bombay High Court and an order of the President, Industrial Court, Bombay, turns on the construction of the expression 'continuous service' as defined in s.2 ( c) of the Payment of Gratuity Act, 1972.

The facts giving rise to these appeals are these : Eighty-five permanent employees of the respondent who were on the regular muster roll, on termination of their employment, made a claim for payment of gratuity for the entire period of their service, i.e., in respect of G every year during which they were in permanent employment, irrespective of !he fact whether they had actnally worked for 240 days in a year or not.

Twenty-five badli employees of the respondent, who were on the badli register, upon being made permanent, made a similar claim for payment: of gratnity for the badli period, i.e. in respect of the period prior to their being made permanent, irrespective of H the fact whether in those years they had been actnally employed for 240 days or not. The r<espondent, however, calculated the number of years in which these employees were actnally employed for at least

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240 days in a year and paid gratuity accordingly. The Labour Court, which is the Controlling Authority, held in relation to the permanent employees that they were governed by the substantive part of the definition of 'continuous service' in s. 2(c) of the Act, upon the basis that there was no break in service, i.e., there was no question of their actual employment or actual working for 240 days or more, but as regards the badli employees, it held that they were not entitled to gratuity in respect of those years in which they were 11ot actually employed for 240 days since they fell within Explanation I to s. 2(c) of the Act.

That view of the Controlling Authority was affirmed in appeal by the President of the Industrial Court. who is the Appellate Authority.

The High Court while upholding the view of these authorities in respect of the bad/is, has, however, reversed their decision with regard to the permanent employees on the ground that unauthorised absence from work result.s in a break of service and, therefore, they were not in uninterrupted service and fell outside the substantive part of s. 2 ( c) but came within Explanation I.

In support of these appeals, it was urged that the High Court was in error in equating the phrase 'actually employed' with 'actually worked'. It was submitted that though the word 'service' has not been defined in the A_ct, the emphasis is on the subsistence of the contract of employment.

It is urged that the word 'employed' connotes a c0ntract of employment and both the permanent employees and badli employees, therefore, fall within the substantive part of the definition of 'continuous service' in s. 2(c).

In substance, the contention is that Explanation I to s. 2(c) covered only those cases where there was a break in continuity of service, by reason of discharge from service and re-employment.

In regard to the permanent employees, it is urged that they would be deemed to be in continuous service for purposes of sub-s. ( 1) of s. 4 of the Act so long as their names are borne on the permanent muster roll.

In other words, the submission was that the jural relationship of employer and employee continues irrespective of whether they had actually worked for 240 days or not. With regard to the badli employees, it is urged that once a person is given a badli card it matters little whether he actually works for 240 days 1>r not, since he had to report for work and his employment is at the volition of the employer. Thus, the absence of the badli employees on the days on which they were not provided with work, although they reported for duty and there was an endorsement made to that effect in the badli card, could not be treated as interruption of service. It was pointed out that the badli employees had been put at par with the permanent employees and enjoyed all such benefits such as bonus,

retrenchment compensation, lay-off compensation, provident fund benefits, benefits under the Employees' State Insurance Act nd the Workmen's Compensation Act, leave under the Factories Act, etc., and there was no reason why they should be deprived of the benefit of gratuity for those years in which they had worked for less than 240 days because of their absence without leave. We are afraid, this line of reasoning cannot be accepted being against the scheme of the Act.

Two questions arise in these appeals. The first is as to whether permanent employees are i:ntitled to payment of gratuity under subs. ( 1) of s. 4 of the Act for the years in which they remained absent without leave for a number of days in a year and had actually worked for less than 240 dayi;, due to absence withont leave.

The second is as to whether the badli employees are entitled to such gratuity on beco1ning permanent employees, for the badli period in respect of the years in which there was no work allotted to them due to their failure to report to duty. These questions relate to the years in which these employees were not actually employed for 240 days in a year, due to their absence without leave.

The Payment of Gratuity Act, 1972 (hereinafter referred to as 'the Act'), is enacted to introduce a scheme for payment of gratuity for certain industrial and commercial establishments, as a measure of social security. It has now bee:n universally recognised that all persons in society need protection against loss of income due to un employment arising out of incapacity to work due to invalidity, old age etc. For the wage earning papulation, security of income, when the worker becomes old or infirm, is of consequential importance.

The provisions of social security measures retiral benefits like gratuity, provident fund and pemion (known as the triple benefits) are of special importance. In bringing the Act on the statute book the intention of the legislature wa1s not only to achieve uniformity and reasonable degree of certainty, bnt also to create and bring into force a self-contained, all-embracing, complete and comprehensive code relating to gratuity. 11Je significance of this legislation lies in the acceptance of the principle of gratuity as a compulsory, statutory retiral benefit.

For a proper appreciation of the question involved, it is necessary to set out the relevant provisions of the Act. Sub-section ( l) of s. 4 reads as follows :

4. (1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,-

(a) on his superannuation, or

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(b) on his retirement or resignation, or A

( c) on his death or disablement due to accident or disease;

Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement;

Provided further that in the case of death of the employee, gratuity, payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs.

Explanation.-For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement.

The expression 'continuous service' has been defined in s. 2 ( c) of the Act in these terms :

2. ( c) "continuous service" means uninterrupted service and includes service which is interrupted by sickness, accident, leave, lay-off, strike or a lock-out or cessation of work not due to any fault of the employee concerned, whether such uninterrupted or interrupted service was rendered before or after the commencement of this Act.

Explanation 1.-In the case of an employee who is not in uninterrupted service for one year, he shall be deemed to be in continuous service if he has been actually employed by an employer during the twelve months immediately preceding the year for not less than-

(i) 190 days, if employed below the ground in a mine, or

(ii) 240 days, in any other case, except when he is employed in a seasonal establishment.

Explanation 11.-An employee of a seasonal establishment shall be deemed to be in continuous service if he bas actually worked for not less than seventy-five per cent of the number of days on which the establishment was in operation during the year.

The Act is a piece of social we1fare legislation and deals with matters relating to payment of gratuity which, like pension, provident

4-214 SCJ/81

fund etc., is a retiral benefit.

Interrupted service by reason of sickness, leave, lay-off, strike, lock-ont. or cessation of work not due to any fault of the employee concerned should not be regarded as a break in continuity of his service.

The inclusive part of the definition ot 'continuous service' in s. 2(c) is to amplify the meaning of the expression by including interrupted service under certain contingencies which, but for such inclusion, would not fall within the ambit of the expression 'continuous service'. There were compelling reasons why the legislature gave an enlarged meaning to the expression 'continuous service' in s. 2(c) of the Act, so that the workers who have rendered long and meritorious service are not deprived of their right to gratuity by reason of absence from duty due to circumstances beyond their control

The two Explanations have been inserted by the legislature to define the words 'one completed year of service' to benefit a class of employees who are not in uninterrupted service for one year. These Explanations employ a fiction which converts service of (a) 190 days, if employed below the ground in a mine, (b) 240 days, in any other case except when employed in a seasonal establishment, in a period of 12 calendar months, or (c) 75 per cent of the number of days which the seasonal establishment was in operation, to be one complete year.

The main point in controversy in these appeals is as to whether the expression 'actually employed' in Explanation I to s. 2(c) must, in the context in which it appears, mean 'actually worked'. The iegis- Jature has, no doubt, used two different expressions, namely, 'actually employed', in Explanation I and 'actually worked' in Explanation II.

But, they are, in our view,, having regard to the context and purpose with which they have been enacted, synonymous. Explanation I deals with the case of an .employee who is not in uninterrupted service for one year.

Such an employee shall be deemed to be in continuous service even though he falls outside the substantive part of the definition in s. 2(c) provided he has been actually employed for 240 days in a year. The expression 'actually employed' in Explanation I must, therefore, mean 'actually worked'. There is a reason why a different expression is used in Explanation II. In the case or a seasonal establishment it is difficult to predicate the number of days on which the establishment would be in operation in the year and an employee of such a seasonal establishment shall, therefore, be deemed to be in continuous service if he has actually worked for not less than 75% of the number of days on which the establishment was in operation.

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• I.

The history of the legislation is set out in the Statement of Objects and Reasons accompanying the Bill.(') The Bill adopted bys. 2(c) the definition of the expression 'continuos service' as defined in s. 2 (b) of the Kerala Industrial Employees' Payment of Gratuity Act, 1970

and s. 2(c) of the West Bengal Employees' Payment of Compulsory Gratuity Act, 1971, which reads :

2. In this Act unless the context otherwise requires,-

( c) "continuous service" means uninterrupted service and includes service which is interrupted by sickness, accident, leave, strike which is not illegal or a lock-out or cessation of work not due to any default of the employee concerned.

The Bill was referred to a Select Committee, and the Select Committee by its Report presented to the Lok Sabha on May 2, 1972 proposed three vital changes in the definition of the expression 'continuous service' in c. 2 ( c) , namely, ( 1) for the purpose of computation of the period of continuous service, the entire period whether interrupted or uninterrupted, before or after the commencement of the Act, had to be taken into account, (2) the period of strikes or lay-offs were to be considered as part of 'continuous service', and (3) the benefit of sub-s. ( 1) of s. 4 was to be extended by alegal fiction in the care of an employee who was not in uninterrupted service for one year. subject to the fulfilment of the conditions laid down in Explanations I and IT.

The legislative intent is brought out in the Report of the Select Committee. The Note of the Committee with regard to the two Explanations bears out that the expression 'actually employed' in Explanation I and the eXIPression "actually worked' in Explanation II

were used in the same sense.

The Note reads : (') F .-.

The Committee also feel that an Explanation may be added to the definition of 'continuous service' to the effect that an employee who works-

(a) in a mine below the ground for 190 days, or

(b) in any other case, for 240 days. in a year, should be deemed to be in continuous service.

l • The Committee also feel that in the case of persons

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employed in seasonal establishments, such persons, would ---

(1) Bill No. 154 of 1971 published in the Gazette of India Extraordinary Part II, Section 2 dated December 10, 1971 at P. 1027 (p. 1034).

(2) Gazette of India Extraordinary, Part II-Section 2 dated May 2, 1972 p. 324

A be deemed to be in continuous service if they had been employed for 75 per cent of the days during which the establishment had been in operation during the season.

that wos the intention with which the two Explanations were added to the definition of 'continuous service' ins. 2(c) of the Act.

The expression 'continuous service' in the context of a gratuity scheme was interpreted by this Court in M/s Jeewanlal (1929) Lld., Calcutta v. Its W0tkme11( ') as follows ;

"Continuous service" in the context of the scheme of gratuity framed by the tribunal in the earlier reference postulates the continuance of the relationship of master and servant between the employer and his employees. If the servant resigns his tmployment service automatically comes to an end. If the employer terminates the service of his employee that again brings the continuity of service to an end.

If the service of an employee is brought to an end by the operation of any law that again is another instance where the continuance is disrupted; but it is difficult to hold that merely because an employee is absent without obtaining leave that itself would bring to an end the continuity of his service.

Similarly, participation in an illegal strike which may incur the punishment of dismissal may not by itself bring to an end the relationship of master and servant It may be a good cause for the termination of service provided of course the relevant provisions in the standing orders in that behalf are complied with; but mere participation in an illegal f:tnlce cannot be said to cause breach in continuity for the purposes of gratuity. (emphasis added)

The legislature has departed from the meaning given by this Court ...-_ in the above case to the expression 'continuous service' bv incorporating the words 'not due to any fault on the part of the employee concerned', to give to that expression a restricted legal connotation.

In construing a social welfare legislation, the court should adopt a beneficient rule of construction; if a Section is capable of two constructions, that construction should be preferred which fulfils the policy of the Act, and is more beneficial to the persons in whose interest the Act has been passed.

When, however, the lan!!Uae is plain and unambiguous, as here, we must give effect to it whatever may be the consequences, for, in that case, the words of the statute

(1) [19621-1 S.C.R. 717 at 722-723.

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L. LIN GAPPA v. LAXMI VISHNU TEXTILE MILLS (Sen, J.) 8 0 5

speak the intention of the legislature. When the language is explicit, its consequences are for the legislature and not for the courts to consider.

The argument of inconvenience and hardship is a dangerous one and is only admissible in construction where the meaning of the statute is obscur" and there are two methods of construction.

In their anxiety to advance beneficient purpose of legislation, the courts must not yield to the temptation of se_eking ambignity when there is none.(')

In dealing with interpretation of sub-s. ( 1) of s.4, we must keep in view the scheme of the Act. Sub-s. ( 1) of s.4 of the Act incorporates the concept of gratuity being a reward for long, continuous and meritorious service.

The emphasis therein is not on 'continuity of employment', but on rendering of 'continuous service'.

The legislature inserted the two Explanations in the definition to extend the benefit to em, ployees who are not in uninterrupted service for one year subject to the fulfilment of the conditions laid down therein. By the use of a legal fiction in these Explanations, an employee is deemed to be in 'continuous service' for purposes of sub-sec. (1) of s.4 of the Act.

The legislature never intended that the expression 'actually employed' in Explanation I and the expression 'actually worked' in Explanation II should have two different me, anings because it wanted to extend the benefit to an employee who 'works' for a particular number of days in a year in either case. In a case falling under Explanation I, an ellliPloyee is deemed to be in continuous service if he has been actually employed for not less than 190 days if employed below the ground in a mine, or 240 days in any other case, except when he is employed in a seasonal establishment.

In a case falling under Explanation II, an employee of a seasonal establishment, is deemed to be in continuous service if he has actually worked for not less than 75 per cent of the number of days on which the establishment was in operation during the year.

In our judgment, the High Court rightly observed : "It is important to bear in mind that in Explanation I the legislature has used the words 'actually employed'. If it was contemplated by Explanation I that it was sufficient that there should be a subsisting contract of employment, then it was not necessary for the legislature to use the words 'actually employed'." It is not permissible to attribute redundancy to the legislature to defeat the purpose of enacting the Explanation.

The expression 'actually employed' in Explanation I to s.2

( c) of the Act must, in the context in which it appears, mean 'actually H worked'. It must accordingly be held that the High Court was right

(1) Craies on Statutes, 6th Edn. pµ. 84--91.

in holding that the permanent employees were not entitled to payment of grntuity . under sub-s. ( 1) of s.4 of the Act for the years in which they remained absent without leave and had actually worked for less than 240 days in a year.

As regards badli employees, there can be no doubt that they are not in uninterrupted service and, therefore, they do not fall within the substantive part of the definition 'continuous service' i11 s.2(c), but are covered by Explanation I. In Delhi Cloth and General Mills Co.

v. Its Workmen(') the Court, while dealing with a gratuity scheme, repelled the contention urged on behalf of the badli employees that since they had to register themselves with the managemnt of the textile mills and were requtred every day to attend the mills for ascertaining whether work would be provided to them or not, the condition requiring that they should have worked for not less than 240 days in a year to qualify for gratuity was unjust and observed:

If gratuity is to be paid for service rendered, it is diffiout to appreciate the grounds on which it can be said that ·

because for maintaining his name on the record of the badli workmen, a workman is required to attend the mills he may be deemed to have rendered service and would on that account be entitled afao to claim gratuity.

Standing Order No. 3 as settled by the Industrial Court uuder s.36(3) of the Bombay Industrial Relations Act, 1946 for Operatives in Cotton Textile Mills, in so far as material, provides '

(3) Operatives shall be classed as (1) Permanent; (2) Probationer; (3) Hadlis; (4) Temporary Operatives; and (5)Apprentices.

xx xx

A "badli" is one who is employed on the post of a permanent operative or probationer who is temtPorarily absent.

xx xx It is not denied that the Management has got "' separate register for the badli employees and that those who need work and when !hey call at the gate of the mills for work, such number of them are employed by the mills to fill up the vacancies of permanent operatives or pro- H bationers who are abs(, nt on a particular day either on account of illness or for any other cause.

(I) [1969] 2 S.C.R. 30'7 at 338.

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L. L!NGAPPA v. LAXMI VISHNU TEXTILE MILLS (Sen, J.) 807

The Report of the Badli Labour Enquiry Committee, Cotton Tex- :tile Industry, 1967, no doubt shows that the badli employees are an

integral part of the textile inc!::.stry and that they enjoy most of the benefits of the permanent employees; but there may not be . any continuity of service as observed by this Court in the Delhi Cloth Mills' case (supra). The badli employees are nothing but substitutes. They are like 'spare ll)en' who are not 'employed' while waiting for a job : Conlon v. Glasgow(').

Val/abhdas Kanji (P) Ltd. v. Esmail Kaya .& Ors.(') taking the view to the contrary, does not appear to lay down a good law. Accordingly, we uphold the view that the badli employees are not covered by the substantive part of the definition of 'continuous service' in s.2(c), but came within Explanation I and, therefore, are not entitled to payment of gratuity for the badli period, i.e. in respect of the years in which there was no work allotted to lhem .due to their failure to report to duty.

The result, therefore, is that the appeals must fail and are accordingly dismissed.

There shall be no order as to costs.

P.B.R.

(1) 36 Scottish Law Reporter 652.

(2) [1978] Lab. I.C. 809.

Appeals dismissed.

LALAPPA LINGAPPA & ORS

February 11, 1981

A. P. SEN

E. S. VENKATARAMIAH, JJ

Payment of Gratuity Act 1972

Section 4(1)

section 4(1)

section 4(1)

Payment of Gratuity Act 1972

section 2(c)

section 2(c)

section 2

section 2(c)

section 4

section 4(1)

section 2

[1969] 2 SCR 307

R. S. Kulkarni

V.?ena Devi Khanna

V. N. Ganpule

F. S. Nariman

B. N. Srikrishna

R. P. Kapur

H. S. Parihar

Shardul S. Shroff

SEN

Bombay High Court

Payment of Gratuity Act, 1972

s. 2(c)

s. 2(c)

s. 2

s. 2(c)

s. 2(c)

s. 4

State Insurance Act

Factories Act

s. 4

Payment of Gratuity Act, 1972

s. 4

s. 2

s. 2(c)

s. 2(c)

s. 2(c)

s. 2(c)

s. 2

Payment of Gratuity Act, 1970

s. 2(c)

May 2, 1972

s. 4

Section 2

Section 2

Bombay Industrial Relations Act, 1946

[1969] 2 S.C.R. 30

Delhi Cloth Mills


BHAGWAN DASS JAIN

UNION OF INDIA

February 11, 1981

[A. P. SEN AND E. S. VENKATARAMIAH, JJ.]

Income-tax Act, 1961, S. 23(2)(i) & Constitution of India 1950, Seventh Schedule List I, Entry 82 and List II, Entry 49-Income-Incorne froni hou.e

property-Self-occupied property-Whether on1ounts to income-Legislative practice-Interpretation of entries in Lists.

fYords and Phrases-'lncome'-Meaning of-Constitution of India, 1950.

Seventh Schedule List I, Entry 82.

Section 22 tn 27 of the Income-tax Act, 1961 relate to the levy and computation of tax on income from house property.

Section 23(2) (i) states that where the property consists of a house in the occupation of the owner for the purposes of his residence, the annual value of such house shall first be determined in the same manner as if the property had been let and further be re~ duced to one half of the amount so <let.ermined or one thousand eight hundred rupees whichever is less.

Where the property consists of more than one house in the occupation of the owner for the purposes of his own residence. Section 23(2)(ii) provides that the provisions of clause (i) shall apply only in respect of one of such houses which the assessee may at his option specify in that behalf.

The petitioner, an assessee under the Act, contended before the High Court in a petition under Article 226 of the Constitution, that inclusion of any amount under section 23(2) of the Act in his income was unconstitutional as there could be no income at all in such a case accruing to him in a true sense of that term and that the liability that was sought to be imposed under the Act in respect of his residential house was in its pith and substance a tax on building falling under Entry 49 of List II of the Seventh Schedule to the Constitution and hence Parliament could not impose the said liability under a law made in exercise of its legislative power under Entry 82 of List I of the Seventh Schedule which authorised it only to levy 'taxes on income other than agricultural income'. The High Court rejected the plea and dismissed the Writ Petition.

In the Special Leave Petition. to this Court it was contended on behalf of the petitioner that as he was not deriving any monetary benefit by residing in his own house, no tax could be levied on him, on the ground that he is deriv~ ing income from that house, and that the word 'income' only means realisation of monetary benefit and that in the absence of any such realisation. the inclusion of any amount by way of notional income under section 23(2) of the Act in the chargeable incon1e was impermissible as it was outside the scope of Entry 82 of List I of the Seventh Schedule to the Constitution.

Dismissing the Special Leave Petition,

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BHAGWANDASS V. UNION 809

HELD ; 1. The tax levied under the Income-tax Act is on the income A

ough computed in an artificial way) from house property and not on house property. Entry 49 of List II of the Seventh Schedule to the Constitution is not, therefore, attracted.

The levy in question squarely falls under Entry 82 of Li't I of the Seventh Schedule to the Constitution. [816 C-Dl

2. The expression 'income' means 'a thing that comes in'.

Income is also define.d. as the gain derived from land capital or labour or any two or more B of them.

Even in its ordinary economic sense, the expression 'income' include not merely what is received or what comes in by exploiting the use of a property but al&o what one saves by using it oneself. That which can be converted into income can be reasonably regarded as giving rise to income.

[812 B, 816 BJ

3. (i) The Government of In<lia Act, 1935 was enacted when the Indian C Income-tax Act, 1922 was in force.

Section 9 of the Indian Income-tax Act, 1922 provided for levy of income tax on the basis of the bona fide annual value of th1! property even when it was in the occupation of the assessee for the purposes of his own residence. While enacting Entry 54 of List I of the Seventh Schedule to the Government of India Act, 1935 the British Parliament must have had in its view the Indian Income-tax Act, 1922 which was probably the only law relating to tax: on incomes in force in British India.

Similarly D the Constituent Assembly while enacting Entry 82 of List I of the Seventh Schedule to the Constitution must have understood that the \Vord 'incun1e' us;:d

in that Entry would in any event include within its scope all items which came within the definition of inco1nc and were subjected to charge in the Indian lncon1e-tax Act, 1922 which was in force at the time the Con<.; titutinn

\\<IS adopted. [815 D-FJ

(ii) The Constitution makers had the Indian Income-tax Act, 1922 in their view is borne out from Article 270(1) of the Constitution 'Nhich provides fer collection of taxes on income by the Government of India and distribution thereof bet\vecn the Union and the States.

Article 366(i) \Vhich Jcfinc~ 'agricultural income' <1s defined for the purposes of the enactments relating to Indian Income-tax and Article 366(29) which defines 'tax on income' as including a tax in the nature of excess profits tax.

In the circumstance'> it would not be \Vrong to construe the \VOn.1 incon1e in Entry 82 as including all items whil,:h were taxable under the conten1poraneous law relatJng to tax on inco1nes which \Vas in force at the time \Vhc11 the Constitution was enacted. [815 G-816 Al

4. This Court in 1\ra1'inclw11dra Mafadal v. Commissioner of fncome-ta:r.

Bombay City 1955 SCR 829. held that the word 'income' in Entry 82 is capable

of a wider meaning than \Vhat was given to it in the Indian Income-tax Act.

G 1922 or the English Act of 1918. [814 HJ

' In Australia the annual value of the tax payers' residence owned by him- .!elf or used rent free is taken for consideration for purposes of levy of inco1ne tax.

In England too in the case of a residence of the assessee, computation of income i5 on the basi<> of presumed income.

[815 A]

Rcscl1 v. The Fcd('r{lf Co111111issioner of Taxation, 66 C.L.R. 198 at p. 224 and Gu1c1·11ors of th1? Rotunda Hospital Dublin v. Conzan (7 T.C. 517 at 586

587) Simon's Income tax (second Edn.) Vol. I p. 502 referred to.

6. It is we11-settled that the entries in the Lists in the Seventh Schedule to

the Constitution should not be read in a narrow or restricted sense and each and every subject mentioned in the entries should be read as including within its scope all ancillary and subsidiary matters which can fairly Lnd reasonably be comprehended in it.

Words in the Constitution conferring legislative power should receive a liberal construction and should be interpreted in their widest amplitude. [811 H-812 BJ

CIVIL APPELLATE JURISDICTION : Special Leave Petition No. 872(1 •

of 1979.

From the Judgment and Order dated 27-10-79 of the Madhya Pradesh High Court in M.P. No. 636/78.

Shiv Dayal, Mrs. Bagga and Mr. S. Bagga for the Petitioner.

The Order of the Court was delivered by

VENKATARAMIAH, J.-The short question which arises for consideration in this petition for special leave to appeal filed under Article 136 of the Constitution is whether it is open to the Income-tax Officer while computing the liability of an assessee to tax under the Incometax Act, 1961 (hereinafter referred to as 'the Act') to include in the income of the assessee any amount calculated in accordance with section 23(2) of the Act in respect of a house in the occupation of the assessee for the purposes of his own residence. The petitioner who is an assessee under the Act contended before the High Court of Madhya Pradesh in a petition filed under Article 226 of the Constitution that inclusion of any amount under section 23(2) of the Act in his income was unconstitutional as there could be no income at all in such a case accruing to him in the true sense of that term, the liability that was sought to be imposed under the Act in respect of his residential house was, therefore, in its pith and substance a tax on building falling under Entry 49 of List II of the Seventh Schedule to the Constitution and hence Parliament could not impose the said liability under a law m'ade in exercise of its legislative power under Entry S2 of List I of the Seventh Schedule to the Constitution which anthorised it only to levy taxes on income other than agricultural income. The High Court reject. ed the plea of the petitioner and dismissed the writ petition. The petitioner has now applied to this Court for special leave to appeal against the decision of the High Court.

When the petition came up for hearing on Febniary 5, !981 before us, we did not find that there wa• 'any ground to grant special H leave to appeal but since the case was argued with some persistence, we decided to give reasons for rejecting the prayer of the petitioner which we proceed to give hereunder :

• '

Section 4 of the Act lays down that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates income-tax at that rate or those rates shall be charged for 1hat yea~ in accordance with, and subject to the provisions of the Act in respect of the total income of the previous year or previous years, as the case npy be, of every person.

Section 14 of the Act mentions 'income from house property' as one of the heads of income liable to charge. Sections 22 to 27 of the Act relate specifically to the levy and computation of tax on income from house property. Section 22 provides that the annual value of property consisting of any buildings <Jr lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "income from house property". Section 23(2) (i) of the Act

states that where the property consists of a house in the occupation of the owner for the purposes of his own residence, the annual value of such house shall first be determined in the same manner as if the property had been let and further be reduced by one-half of the amount so determined or one thousand and eight hundred rupees, whichever is less. Section 23(2) (ii) of the Act provides that where the property consists of more than one house in the occupation of the owner for the purpooes of his owu residence, the provisions of clause (i) of section 23 (2) shall apply only in respect of one of such houses, which the assessee may, at his option, specify in that behalf. There are some other ancillary and incidental provisions in the Act dealing with the Computation of the annual value of such property with which we are not concerned in the present petition.

F The argument urged on behalf of the petitioner is that as the petitioner is not deriving any monetary benefit by residing in his own b()use, no tax can be levied on him on the ground that he is deriving income from that house. It is contended that the word 'income' only means realisation of monetary benefit and that in the absence of any such realisation by the assessee, the inclusion of any amount by way G of notional income under section 23 (2) of the Act in the chargeable income was impermissible, as it was outside the scope of Entry 82 , of List I of the Seventh Schedule to the Constitution.

Entry 82 of List I of the Seventh Schedule to the Constitution ff <:mpowers Parliament to levy 'taxes on income other than agricultural income'. Now it is well-settled that the entries in the list in the

Seventh Schedule to the Constitution should not be read in a narrow or restricted sense and each and every subject mentioned in the entries should be read as including within its scope all ancillary and subsidiary matters which can fairly and reasonably be comprehended in it. Words in the Constitution conferring legislative power should receive a liberal construction and should be interpreted in their widest amplitude.

The expression 'income' according to Oxford Dictionary means 'a thing that comes in'.

Income may also be defined as the gain derived from land, capital or labour or any two or more of them.

C In Resch v. The Federal Commissioner of Taxation(') Dixon, J. of the High Court of Australia observed :

"The subject of the income tax has not been regarded as income in the restricted sense which contrasts gains of the nature of income with capital gains, or actual receipts with increases of assets or wealth.

The subject has rather been regarded as the substantial gains of persons or enterprises considered over intervals of time and ascertained or estimated by standards appearing sufficiently just, but nevertheless practical and sometimes concerned with avoidance or evasion n1ore than \Vith ac(:uracy or precision of estimation.

To include the annual value of the taxpayer's residence owned by himself or used rent free and to fix it at five. percent of the capital value has not been considered to introduce a new subject [Hardinge's Case (1917) 23 C.L.R. 119].

To treat part of the undistributed profits earned during the current year as part of the assessable income of the shareholder imports no new subject [Cornell's case

(1920) 29 C.L.R. 39 cf. Kellow-Falkiner Pty. Ltd. v.

Federal Commissioner of Taxation (1928) 34 A.L.R. 276], nor does it to substitute, in the case of a foreign-controlled business, for taxable income ordinarily cakulated a percentage of gross receipts fixed by the discretionary judgment of the Commissioner [British Imperial Oil Cases

(1925) 35 C.LR. 422; (1926) 38 C.L.R. 153]. (emphasis supplied)

In Simon's Income Tax (Second Edition) Volume I, page 502 dealing with the question of computation of income under Schedule H 'A' to the English Income-tax Act, which related to tax on the income attributable to property, it is stated as follows :-

(I) 66 C.L.R. 198 at p. 224

' ..

"It is now clear however, that A

( l) income tax is but one tax imposed by the Income Tax Acts;

(2) incon1e tax is a tax upon income; and

( 3) Sched. A is but ono of five Schedules which provide varying methods of estimating the measure of that income from different sources for the purposes of

charge to tax.

The theory behind Sched. A is that the possession of an interest i11 property gives rise to incon1e, a theory which is 1wt always horne out in fact.

That there may be no income in fact is disregarded when the asse,,, ment is made.

The actual ur hypothetical income has to be measured by some standard for the purposes of taxation and the standard prescribed is the annual value.

This principle has been subject to adverse comment, but once the theory is appreciated, the method may be understood and any confusion of thought, created by the words of the charging section, dispelled.

The use to which land is put docs not (apart from the excepted concerns mentioned in the proviso to para. l of Sch ed. A above) prevent it from being assessed under Sched. A; but if a trade which is not one of those excepted concerns is carried on property which is owned by the trader and is assessed under Sched.

A, an allowance for the annual value is made in computing the profits of the trade''. (emphasis supplied) In the Governors of the Rotunda Hospital, Dublin v. Coman(') which was a case arising from Ireland, Lord Atkinson observed thus :

"It would, I think, be well to bear in mind that, to use Lord Macnaghten's words in his celebrated judgment in the London County Council v.

The Attorney General ( 4 T.C.

265) (1901 A.C. 35), ''Income Tax .... "is a tax on income". When the amount of the income to be taxed under the Act of 1842 and the Acts amending it comes to be measured, different standards are selected, and the words "profits or gains" are used in reference to all the Schedules In the Act of 1842 to describe the income, the subject of charge.

The standard selected as a measure of the amount of the income to be taxed under Schedule A in respect of lands, tenements, hereditaments and heritages capable of occupation is the annual value.

If the owner of such pro- --(!) 7 T.C. 517 at 586-587

perties as these should be himself in occupation of them, it by no means follows that he will, in fact, derive from them an income equal to this annual value; but, as he has the use and enjoyment of the properties, it is, for the purposes of the Statute, presumed that he does derive from them an income equal in amount to this annual value, and the tax is accordingly, under Schedule A, assessed upon this presumed

income". (emphasis supplied) .

In Navinchandra Mafatlal '. The Commis, sioner of Income-tax, Bombay City(!) while justifying the levy of income tax on capital gains under section 12-B of the Indian Income-tax Act, 1922 enacted by the Central Legislature in exercise of the power conferred under Entry No. 54 of List I of the Seventh Schedule to the Government of India Act, 1935 corresponding to Entry 82 of List I of the Seventh Schedule to the Constitution, Das, J. (as he then was) having observed at page 837 thus:

"What, then, is the ordinary, natural and grammatical meaning of the word "income"? According to the dictionary it means "a thing that comes in". (See Oxford Dictionary, Vol. V, page 162; Stroud, Vol. II, pages 14- 16). In the United States of America and in Australia both of which also are English speaking countries the word "income" is understood in a wide sense so as to include a capital gain. Reference may be made to Eisner v. Macomber (1920) 252 U.S. 189; 64 L.Ed. 521, Merchants' Loan & Trust Co. v. Smietanka (1925) 255 U.S. 509; 65 L.Ed. 751, and United States v. Stewart (1940) 311 U.S. 60; 85 L. Ed. 40, and Resch. v. Federal Commissioner of Taxation (1942) 66 C.L.R. 198. In each of these cases very wide meaning was ascribed to the word "income" as its natural meaning''

proceeded to hold at page 838:

"As already observed, the word should be given its widest connotation in view of the fact that it occurs in a legislative head conferring legislative power".

In the above case this Court held that the word "income" in Entry No. 54 of List I of the Seventh Schedule to the Government of India Act, 1935 should be given a meaning wider than the connotation H given to it in the English Income-tax Act, 1918 under which income attributable to property was chargeable under Schedule 'A' thereof.

(I) [1955] S.C.R. 829.

< •

• ..

Now coming to the specific question of the charge arising under section 23(2) of the Act it is already seen that in Australia the annual value of the tax payer's residence owned by himself or used rent free is taken for consideration for purposes of levy of income tax.

In England too in the case of a residence of the assessee, computation of income is made on the basis of presumed income. In D. M.

Vakil v. Commissioner of Income-tax(') which was a case ansmg under the Indian Income-tax Act, 1922, the High Court of Bombay held that under section 9 of that Act the tax was payable by an assessee in respect of the bona fide annual value of the property irrespective of the question whether he received that value or not.

The High Court of Gujarat has also !&ken the same view in Sakarlal Balabhai v. Income Tax Officer, Special Investigation Circle

IV, Ahmed a bad & A nr. (')

There is one other circumstance which persuades us to take the view that computation of income for purposes of levy of income tax in accordance with section 23(2) of the Act is justifiable under Entry 82 of List I of the Seventh Schedule to the Constitution. It is to be borne in mind that the Government of India Act, 1935 was enacted when the Indian Income-tax Act, 1922 was in force.

Section 9 of the Indian Income-tax Act, 1922 provided for levy of income tax on the qasis of the bona fide annual value of the property even when it was in the occupation of the assessee for the purposes of his own residence.

While enacting entry 54 of list I of the Seventh Schedule to the Government of India Act, 1935, the British Parliament must have had in its view the Indian Income-tax Act, 1922 which was probably the only law relating to tax on incomes in force in British India then.

Similarly the Constituent Assembly while enacting Entry 82 of List I of the Seventh Schedule to the Constitution must have understood that the word 'income' used in that Entry would in any event include within its scope all items which came within the definition of income and were subjected to charge in the Indian Income-tax Act, 1922 which was in force at the time the Constitution was adopted.

That the Constitution makers had the Indian Income-tax Act, 1922 in their view is borne out from Article 270 ( 1) of the Constitution which provides for collection of taxes on income by the Government of India and distribution thereof between the Union and the States, Article 366(1) which defines 'agricultural income' as agricultural income as defined for the purposes of the enactments relating to Indian Income--

tax and Article 366(29) which defines 'tax on income' as including a tax in the nature of an excess profits tax. In the circumstances ii

(1) 14 I.T.R. 298.

(2) 100 J.T.R. 97.

would not be wrong to construe the word 'income' in Entry 82 as including all items which were taxable under the contemporaneous law relating to tax on incomes which was in force at the time when the Constitution was enacted when as observed by this Court in the case of Navinchandra Mafatlal (supra) the word 'income' in Entry 82 is capable of a wider meaning than what was given to it in the Indian Income-tax Act, 1922 or the English Act of 1918.

Even in its ordinary economic sense, the expression 'income' includes not merely what is received or what comes in hy exploiting the use of a property but also what one saves by using it oneself. That which can be converted into income can be reasonably regarded as C giving rise to income. The tax levied under the Act is on the income (though computed in an artificial way) from house property in the above sense and not on house property.

Entry 49 of List II of the Seventh Schedule to the Constitution is not, therefore, attracted. The levy in question squarely falls under Entry 82 of List I of the Seventh

D Schedule to the Constitution.

Hence we do not find any merit in the contentions urged on behalf of the petitioner.

For the foregoing reasons, the leave prayed for is refused and the petition is dismissed.

N.V.K.

Petition dismissed.

• ..

BHAGWAN DASS JAIN

UNION OF INDIA

February 11, 1981

A. P. SEN

E. S. VENKATARAMIAH, JJ.

Income-tax Act, 1961

S. 23(2)(i)

Constitution of India

Seventh Schedule

Constitution of India

Seventh Schedule

Section 22

Income-tax Act, 1961

Section 23(2)

Section 23(2)(ii)

Article 226

section 23(2)

Seventh Schedule

Parliament

Seventh Schedule

section 23(2)

Seventh Schedule

BHAGWANDASS

Dismissing the Special Leave Petition,
'

• •

BHAGWANDASS V. UNION 809

HELD ; 1.

Income-tax Act

Seventh Schedule

Seventh Schedule

Indian C Income-tax Act, 1922

Section 9

Indian Income-tax Act, 1922

Seventh Schedule

Article 270(1)

Government of India

Article 366(i)

Article 366(29)

Australia

England

Seventh Schedule

Madhya Pradesh High Court

Shiv Dayal

Bagga

S. Bagga

VENKATARAMIAH

Article 136

section 23(2)

High Court of Madhya Pradesh

Article 226

section 23(2)

Seventh Schedule

Seventh Schedule

Febniary 5, !

Section 4

Section 14

Sections 22 to 27

Section 22

Section 23(2)

Section 23(2)

section 23

section 23

Seventh Schedule

Seventh Schedule

Seventh Schedule

High Court of Australia

Hardinge

Cornell

Simon

Income-tax Act

Ireland

Atkinson

Macnaghten

Navinchandra Mafatlal

section 12

Indian Income-tax Act, 1922

Seventh Schedule

Das

United States of America

S. 189

S. 509

S. 60

English Income-tax Act, 1918

section 23(2)

Indian Income-tax Act, 1922

High Court of Bombay

section 9

High Court of Gujarat

section 23(2)

Seventh Schedule

Indian Income-tax Act, 1922

Section 9

Indian Income-tax Act, 1922

British India

Seventh Schedule

Income-tax Act

Article 270

Article 366(1)

Article 366(29)

Indian Income-tax Act, 1922

Seventh Schedule

N.V.K.


, '

UNION OF INDIA & ORS.

M. B. PATNAIK & ORS .

February 11, 1981

(S. MURTAZA FAZAL ALI AND A. VARADARAJAN, JJ.]

Disciplinary Proceedings in a service matter-Order of reversion quashed by the High Court on a technical ground-Propriety of the second enquiry on merits-Whether it is necessary that the enquiry which had been held in part by more than one enquiry offecers should be continued by the satne enquiry officers until the end-Original enquiry officers ceased to hold their 1'epec1ivc offices by rcasori of their promotion to higher posts-Whether t11e second enquiry

done by them while holding the higher promotional posts are bad and without C authority of law.

Allowing the appeals by special leave, the Court,

HELD: (1) When an earlier order of reversion was quashed on a techni~ cal ground, a second enquiry on merits could be held and it is open to the disciplinary authority to continue the proceedings in accordance with Jaw.

The order of reinstatement pursuant thereto is not a bar to the second enquiry.

[820 F-GJ

Superintendent (Tech. I), Central Excise I.D.D. Jahalpur and Ors. v. Pratap Rai, [1978] 3 S.C.R. 729; Anand Narain Shukla v. State of Madhya Pradesh, A.LR. 1979 S.C. 1923, followed.

(2) It is not at all necessary that the enquiry which had been held in part by more than one enquiry officers should be continued by the same enquiry officers until the end. The post which the members of the Inquiry Committee held originally might have been ceased to exist at a later stage, or one or more of the members of the Inquiry Committee may no longer be awilable either on account of retirement or due to any other cause. For that reason, it could not be held that the enquiry could not be continued at all. Therefore, there could be no valid objection to the supplementary enquiry being continued by the very two individuals, in the instant case even after they had coosed to hold their respective offices which they held at the time of the original enquiry.

[823 G-H, 824 AB]

General Manager, Eastern Railway and another v. Jwala Prasad Singh, [1970] 1 sec 103, applied.

[Having regard to the long lapse of time, the offence having been alleged to have been committed in or about 1955, the Court held that the fresh enquiry need not be held, and accepted the equitable offer of the Union Railways and directed payment of Rs. 12,000 /· to each of the respondent employees.]

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2119-2121 of 1979.

Appeals by special leave from the Judgment and Order dated 10-1-1979 of thoe Orissa High Court in O.J.C. Nos. 1261/76, 833/77 and 834/77.

5-214 SCI/81

AND

Civil Appeal No. 389 of 1981.

Appeal by Special Leave from the Judgment and Order dated 10-1-1979 of the Orissa High Court in O.J.C. No. 832/77.

M. M. Abdul Khadar, P.A. Francis, Gurumurthy and R. N. Pvddar for the Appellants.

Amlan Ghosh for the Respondent•.

The Judgment of the Court was delivered by

VARADARAJAN, J.-These appeals by special leave have been filed against two judgments of a Division Bench of the Onssa High Court (C. A. No. 389 of 1981) arising out of the judgment in Original Jurisdiction Case No. 832 of 1977 and C. As. Nos. 2119-2121 of 1979 arising out of Original Jurisdiction Cases Nos. 1261 of 1976 and 833 and 834 of 1977 respectively. P. N. L. Das, the respondent in C.A.

No. 389 of 1981 was appointed as a Booking Clerk in the South Eastern Railway in 1955 and had been duly confirmed at that post.

M. B.

Patnaik, the respondent in C. A. No. 2119 of 1979, was working as a confumed Commercial Clerk at Khurda Road in the South Eastern Railway, having been appointed in January-February 1964. D. Sahu and S. C. Mitra, the respondents in C.As. Nos. 2120 and 2121 of 1979 respectively were working as confirmed Booking Clerks in the South Eastern Railway at about the same time.

A departmental enquiry was initiated against these four respondents and three others, namely, Ch. N. Murty, B. S. N, Rao and B. Papa Rao in 1964 on the basis of a report of the Travelling Insipector of Accounts, and two charges were framed against them.

The second charge was not pressed, , md we are, therefore, concerned only with the disciplinary proceeding relating to the first charge, which led to the removal of all the seven persons from service.

The first charge framed against these six persons was this:-

"On 20th May, 1959, 47 third-class express tickets had been issued from Khurda Road to Howrah for a total fare of Rs. 497.73 and these were accounted short on the plea of over-issue of these tickets on 12-5-59. The record at Howrah Station indicated that the tickets were actually sold on 20-5-59 and not on 12-5-59.

The result was the fare amounting to Rs. 497.73 had been misappropriated on 20th December, 1959 by tampering with the figure relating to 12-5-59 in the cash book.

The record foils of foreign eXiPress fare tickets issued on 12-5-59 were fraudulently cancelled and the sum of Rs. 493.53 already accounted in the cash book 11gainst those

' I

two foreign express tickets was erased, and to balance the sum a fictitious sale of 4 7 tickets had been entered in the cash book."

Several points had been raised in the Writ Petition (Original Jurisdiction Case) No. 832 of 1977. But when that case was taken up the learned counsel for the petitioner P. N. L. Das confined his arguments only to two points, namely ( 1) that though the Evidence Act does not strictly apply, suspicion and conjecture cannot form the basis of any conclusion in any departmental enquiry and (2) reasonable opportunity of defending himself had not been given to the petitioner P. N. L.

Das.

The disciplinary authority and punishing authorit), namely, the General Manager, constituted an Enquiry Comm; uee consisting of the Assistant Commercial Superintendent, Khurda Road and the Assistant Accounts Officer, Garden Reach, namely, Shri K. Julhe and Shri B. B.

Chatterjee.

In the midst of the enquiry Shri K. Julhe was transferred and thereafter his successor in office Shri B. K. Patnaik and Shri B. B.

Chatterjee, the Assistant Accounts Officers, bGarden Reach continued the enquiry.

The Enquiry Officers found the appellants in these appeals guilty of the charge.

The punishing authority, the General Manager, on the representation of the respondents in C. As. Nos. 2119- 2121 of 1979, directed a supplementary enquiry to be held. Notice of the supplementary enquiry was given in April 1967. At that time Shri

B. K. Patnaik, who succeeded Shri K. Julhe as the Assistant Commercial Superintendent, Khurda Road as stated above, had been promoted as a Divisional Commercial Superintendent and was posted at Kharagpur while Shri B. B. Chatterjee, who was Assistant Accounts Officer, Garden Reach, had been promoted as the Divisional Accounts Officer and had been posted at Adra.

These very persons issued the notice for continuing the enquiry after the General Manager directed the supplementary enquiry. It is at this stage that P. N. L. Das, the appellant in C. A.

No. 389 of 1981 challenged in 0. J.C. No. 579 of 1971 the jurisdiction of the Enquiry Board. In that Writ Petition, Misra and Panda, JJ. of the Orissa High Court while negativing several other contentions

raised on behalf of P. N. L. Das, directed that the supplementary enquiry pending against P. N. L. Das shall be continued by the officers holding the post of Assistant Commercial Superintendent, Khurda \{oad

and the Assistant Accounts Officer, Garden Reach and not by Shri B. K. Patnaik who had been promoted as the Divisional Commercial Superintendent and was posted at Kharagpur and ceased to be Assistant Commercial Superintendent, Khurda Road and by Shri B. B .. Chatterjee who had been promoted as the Divisional Accounts Officer and posted at Adra and ceased to be the Assistant Accounts Officer, Garden Reach.

In W. Ps. (O.J.C.) Nos. 1261/76 and 833 and 834/77 Misra and Mohanty, JJ of the Orissa High Court found that by the time tl:\e decision in the said 0. J. C. No. 579 of 1971 was rendered by Misra and Panda, JJ on 20-9-72, the enquiry against the respondents in C.As. Nos. 2119-2121 of 1979 had been disposed of and the disciplinary authority had taken into account the material collected in the supplementary enquiry and found the respondents in these three appeals guilty, in consequence of which these respondents were removed from service by the punishing authority.

Writ Petitions (O.J.C.) Nos. 1271/76 a\ld 833 'lllld 834/77 were filed for challenging the removal of the respondents in C. As. Nos. 2119-2121 of 1979 from service.

Misra and Mohanty, JJ held in these three Writ Petitions in their judgment dated 10-1-79 that in view of what has been stated in the decision in Writ Petition (O.J.C.) No. 579 of 1971 (P. N. L. Das v. Union of India & Ors.(1) the supplementary enquiry made by Shri B. K. Patnaik who had ceased to be the Assisl'ant Co=ercial Superintendent, Khnrda Road and Shri B. B. Chatterjee who had ceased to be the Assistant Accounts Officer, Garden Reach, must be held !o be without authority of law, and having regard to the fact that the case of the railway administration was not that the material gathered in the supplementary enquiry had not been used by the enquiry officers and the disciplinary authority, the finding of gnilt 'lllld the imposition of punishment on the basis of that finding could not be sustained. Accordingly, the learned judges allowed these Writ Petitions (0.J.C.) Nos. 1261/76 and 833 and 834/77 and quashed the order made in the disciplinary proceedings and directed that each of the three petitioners before them, namely, the respondents in C. As. Nos. 2119-2121 of 1979 shall be deemed to be continuing in service and would be entitled to appropriate service benefits on that footing.

Mr. Pal, who appeared fqr the Railway Administration before Misra and Mohanty, JJ in these three Writ Petitions requested the learned judges to indicate that it is opebn to the disciplinary authority to continue the proceeding in accordance with law. We are of the opinion that the learned cour.sel was perfectly justified in doing so.

This Court has held in Anand Narain Shukla v. State of Madhya Pradesh(') that when the earlier order of reversion was quashed on a technical ground, a second enquiry on merits could be held and that the order of reinsl'atement pursuant to the quashing of the earlier order on a technical ground is not a bar, and this Court negatived the contention that after t11e earlier order of reversion was quashed by the High Court and the govern-

1) (1972) Vol. 38 Cuttack Law Times.

(2) AIR 1979 S.C. 1923.

• •

• •

ment servant was reinstated, no second enquiry on the very same charge could be held and no second order of reversion could be legally and validly made. A similar view has been taken by this Court in Superintendent (Tech. I), Central Excise l.D.D. Jabalpur and Ors. v. Partap Rai(') in which it has been held that where an order passed in appeal vacates the order of the First Tribunal on purely technical grounds and expressly states that it was being passed without prejudice, which me11ns that it was not an order on merits of the case, such an order does not debar fresh adjudicatory proceedings which my be justified under the law and that when an order is struck down as invalid being in violation of the principles of natural justice, there is no final decision of the case and all !hat is done is that the inherent defect is removed but the proceedings are not terminated. But Misra and Mohanty, JJ declined to consider favourably the request of the learned counsel for the Railway Administration before them namely, that they should indicate that it is open to the disciplinary authority to continue the proceeding in accordance with law on the ground that 15 years had elapsed since the charges were framed and the petitioners before them namely, the respondents in C. As. Nos. 2119-2121 of 1979, had been suffering on account of being subjected to disciplinary proceedings for such a long time and that it would be a mockery of justice if aftr the lapse of so many years the enquiry should commence again on the same charges.

When the supplementary enquiry, mentioned above, commenced and P. N. L. Das, the respondent in C. A. No. 389 of 1981 was examined, he insisted upon production of certain documents and witnesses but they were not made available here on the plea that the documents were not available and the witnesses whq appeared to he ticket collectors, could not be co-related. However, as already stated, he was adjudged guilty of the charge on the footing that he had misappropriated the sale proceeds of express fare tickets.

Misra and Mohanty, JJ observed in their judgment in W.P. (O.J.C.) No. 832/ 77 that there is no positive material worth the name to support the charge and lead to the conclusion that tickets had actually been ul!Iized, that the relevant documents appeared not to have been preserved on account of negligence on the part of the administration and that on the ground that the evidence is not available prejudice cannot be allowed to be caused to the petitioner before them by relying upon suspicion and conjecture as evidence.

The learned judges further observed that as things stood it is indeed difficult for them to hold tliat there is any evidence on record to support the charge.

In that view they allowed the Writ Petition and quashed the punishment imposed on

(1) [1978/ 3!S.C'.R. 729.

A P. N. L. Das and held that he continnes to be in ser•1ice and is entitled 1.o all the service benefits admissible to him.

These Civil Appeuls by special leave have been filed against these judgments of the Orissa High Court.

In the course of hearing of these appeals it was represented to us that C. N. Murthy, B. S. N. Rao and B. Papa Rao have since retired and that all payments have been made to them in fu!J. It was also represented that even P. N. L. Das had been reinstated and all arrears etc. due to him have been [paid.

Mr. M. M. Abdul Khader, learned counsel appearing for the appellants in all these cases, submitted that the view expressed in P. N. L. Das v. Union of India & Ors. (supra) that the supplementary enquiry directed to be held by the disciplinary authority should be held only by officers holding the post of Assistant Commercial Superintendent, Khurda; Road and Assistant Accounts Officer, Garden Reach and not by the officers who had held those posts at the time of the original enquiry and ceased to hold posts subsequently, is incorrect. The learned counsel submitted that this position would appear from the decision of this Court in General Manager, Eastern Railway and another v. Jwala Prasad Singh(') referred to in the Judgment of the learned judges of the Orissa High Court itself.

The learned judges of the Orissa High Court have extracted the following passage from the judgment of this Court in General Manager, Eastern Railway and another v. Jwala Prasad Singh

(supra) in heir judgment :-

"In our opinion the above procedure does not leave any scope for the guidance of a member of an Inquiry Committee consisting of more than one person by the impression formed by him about the truthfulness or otherwise of a particular witness examined during the inquiry.

From the stage antecedent to the framing of the charges everything is recorded in writing.

The allegations on which the charges are based are made known to the railway sernmt and he is called upon to file his written statement after looking into all the relevant records.

The oral evidence of all the witnesses tendered during the enquiry is recorded in writing.

Whereas here the oral evidence is recorded in the presence of three persons constituting the Inquiry Committee, any impression created by the demeunour of a particular witness on the mind of any one member cannot affect the conclusion afterwards arrived at jointly by them. It cannot be suggested that all the three persons would record

(l) [1970] 1 s.c.c. 103.

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.. ,-..

UNION v. M. B. PATNAJK (Varadarajan, !.) 823

their impressions separately about the demeoanour of a witness and it is quite possible that a particular witness may appear to one member of the committee to be nntruthful without his being considered so by the others. The members of the Inquiry Committee cannot record their findings separately, but it is their duty to record findings on each of the charges together with the reoasons therefor. It is to be noted that the duty of the Inquiry Committee ends with the making of the report. The Disciplinary Authority has to consider the record of the inquiry and arrive at its own conclusion on each charge. Whatever may be the impression created by a particular witness on the mind of one member of the Committee, the same is never translated into writing and the Disciplinary Committee merely goes by the written record after giving a personal hearing to the railway servant if he asks for it.

Even if the Inquiry Committee makes a report absolving the railway servant of the charges against him, the Disciplinary Authority may, on considering the entire record come to a different conclusion and impose a penalty. This is amply borne out by a judgment of this Court in Union of India v. H. C. Goel (A.I.R. 1964 S.C.

364) where it was said that neither the findings nor the recommendations of the Inquiry Committee are binding on the Government.

In such a state of affairs a change in the personnel of the Inquiry Committee after the proceedings are begun and some evidence recorded cannot make any difference to the case of the railway servant. The record will speak for itself and it is the record consisting of the documents and the oral evidence as recorded which must form the basis of the report of the Inquiry Committee. The Committee is not the punishing authority and the personal impression of a member of the Committee cannot possibly affect the decision of the Disciplinary Authority. In a state of affairs like this, we cannot see any reason for holding that any kn.own principle of natural justice is violated when one member of the Committee is substituted by another."

It would appear from the above extract that it is not at all necessary that the enquiry which bad been held in part by more

than one enquiry officers sl1ould be continued by the same enquiry H officers until the end.

The post which the members of the Inquiry Committee held originally might have been ceased to exist at a later

stage, or one or more of the members of the Inquiry Committee may no longer be available either on account of retirement or due to any other cause.

For that reason, it could not be held that the enquiry could not be continued at all.

Therefore, there could be no valid objection to the supplementary enquiry being continued by the very two individuals, even after they had ceased to hold their respective offices which they held at the time of the original enquiry.

The plea of malafides raised against the two Enquiry Officers on behalf of P. N. L. Das, the respondent in C.A. No. 389 of 1981 before Misra and Panda JJ, when Writ Petition (0.J.C.) No. 579/71 was heard was rejected by the learned Judges who have observed in their judgment that after hearing the counsel they were satisfied that no good fpundation has been laid for the plea of malafides, bias or prejudice by the enquiry officers and it was also conceded by the learned counsel who appeared for P. N. L. Das in that Writ Petitfon that on the material on records it may be difficult for him to persuade them to hold in favour of the petitioner before them in regard to the plea of mala fides.

Therefore, we are clearly of the opinion there could be no bar to B. K. Patnaik and B. B. Chatterjee who were originally the Assistant Commercial Superintendent, Khurda Road and Assistant Accounts Officer, Garden Reach respectively, holding the supplementary enquiry even after they ceased to hold their respective offices by reason of their promotion as Divisional Commercial Superintendent, Kharagpur and Divisional Accounts Officer, Adra sometime before the commencement of the supplementary enquiry.

However, we agree with Misra and Mohanty JJ of the Orissa High Court that it would be inequitable for a fresh enquiry being made into the charge framed against the respondents in S. As. Nos. 2119- 2121/79 or to go into tho merits of the case against P. N. L. Das the respondent in C.A. No. 389 of 1981, having regard to the long lapse of time, the offences having been stated to have been committed in about 1955.

Mr. M. M. Abdul Khader, learned counsel for the appellants in these appeals represented before us that no recovery will be made from S/Shri Ch. R. Murty, B. S. N. Rao and B. Papa Rao who have retired from service and also from P. N. L. Das the respondent in C.A. No. 389 of 1981 who has been reinstated subsequent to the decision of the Orissa High Court in Writ Petition (0.J.C.) No. 832 of 1977.

We, accordingly, dismiss these appeals and direct the parties to bear their respective costs.

Advocates fee Rs. 1,000/-, one set.

It was also represented before us by Mr. M. M. Abdul Khader that Rs. 22,400/-, Rs. 19,250/- and Rs. 19,250/- would be payable to the respondents in C.A. Nos. 2119-2121/79 respectively if these

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UNION v. M. B. PATNAIK (Varadarajan, J.) 825

appeals had been disposed of against the Railway Administration on merits and that the Administration would, however, pay Rs. 12,000/- to each of these person, namely, M. B. Patnaik, D. Sahu and S. C.

Misra.

We accept this offer as being beneficial to these three respondents in C.As. Nos. 2119-2121 of 1979 who will be entitled to recover from the Railway Administration a sum of Rs. 12,000/- each up to 22-1-81 on account of arrears of salary etc. payable to them from the date of their suspension.

V.D.K .

Appeals allowed.

UNION OF INDIA & ORS

M. B. PATNAIK & ORS

February 11, 1981

S. MURTAZA FAZAL ALI

A. VARADARAJAN, JJ.

[1978] 3 S.C.R. 729

sec 103

M. M. Abdul Khadar

P.A. Francis

Gurumurthy

R. N. Pvddar

Amlan Ghosh

VARADARAJAN

P. N. L. Das

M. B.

Patnaik

D. Sahu

S. C. Mitra

South Eastern Railway

Ch. N. Murty

B. S. N

Rao

B. Papa Rao

20th May, 1959

Howrah

20th December, 1959

P. N. L. Das

P. N. L.

Das

K. Julhe

B. B.

Chatterjee

K. Julhe

B. K. Patnaik

B. B.

Chatterjee

Kharagpur

B. B. Chatterjee

Adra

P. N. L. Das

Misra

Panda

Orissa High Court

B. B .. Chatterjee

Mohanty

Pal

C. N. Murthy

B. S. N. Rao

M. M. Abdul Khader

Ch. R. Murty

M. B. Patnaik

S. C.

Misra