ASSOCIATED CEMENT COMPANIES LTD. E.TC.

T.C. SHRIVASTAVA & ORS.

March 29, 1984 B

[V.D. TULZAPURkAR AND R.S.' PATHAK, JJ.]

Industrial Ernploynient (Standing Orders) Art, 1946-Standing Orde1s-Certified Standing Order. No. Ji-Praiding that all disn1issal orders shall be passed by the Manager or A Cring A1anager who shall do so after giving the accusd an cppot tunity to o_ffer any exp!anation-Jr:terpreation of-IVhether co11te1nplates sei:ond ;'.) opportunity to" workman aftfi conclusion of ehquiry and before inflicting puish n1ent of dis1r1isSal_.:._Whether enquiry gets vitiated in absence of such opportunitjl.

 Fol.Jr workmen of the appellant company in Civil Appeal No. 209/73 \Vere charged for mis-conduct as defined in Standing Order No. 16. The enquiry -Officer found them guilty of the charges .• on the basis of the Enquiry Officer's

report and after looking into the previous record of the workmen, the' General Manager dismised theITi.

On a dispute having been raised it was referred to the arbitrator, first respondent, un<ler section lOA of the Industrial Disputes Act 1947. The arbjtr<itor held that the enquiry which was otherwise fair and valid was viiatep because no secOnd opportunity was given to the workrrien be~ fore disrcissing them as required by the Standing Order No: 17. The Arbitratot set aside the dismissal of two workmen and confinTied that of-the other hvo: The managem!nt and theworkn1en challenged the award in the High Court by two writ petitions. lfhe High Court cor, firmed the. a, vard arid di_smissed both lhe writ petltions. Hence these appeals by management .and the workmen.

Allowing the appal of the managcn1cnt and dismissing that of the workmen.

IIELD: Under Standing Order No. 17 no second _opportunity of showing cause on the question of punishment is contemplated. [3670]

Neither. under the ordinary Jaw of the land nor under industrial law a

secondopportunity 'to show cause against the proposd punishment is nece'isary.

This of course, does nOt n1ean th1t the sta'nding order may not. provide far it but unless the standing order provide for it either expressly or by necessary iin'pl!cation, no enquiry which is otherwise fair and alid Will be vitiated by non-affording of such opportunity. 13698-D]

Standing Ordef No. 17 provides that a worker mii.y be suspended, fined or

dismissed if found guilty of mis-conduct as defined in Stnding Order No. 16. . ., Para 3 of Standing Order No. 17 says that "all dismissal orders shall be passed by the Manager or Acting Man.ager who shall do so after giving the accu<ed an H opportunity to Offer any explanation." The question is whether para 3 provides for such second opportunity eing given to the delinquent The words ''all dis~

missal orders shall be passed by ihe Manager Ofter giving the accused an opportunity to any offer explanation" in para 3 of Sanding _Order No. 17 are wholly inappro"':..

p'tiate to convey the idea of a second hearing or opportunity On the que'stion of punbhment but appropriate in th~ contl!Xt of seeking an 61Xplanation in regard to the alleged mis-conduct charged against hin1: An 'explanation• is to be call ed from the 'accused' which suggests that the _sam.e is to be called for prior to the recording of a finding that the. dl!linquent is guilty of mis-conduct ; W: is the alleged misconduct that is. to be -explftincd by him and not the proposed punish ment. On a plain reading of the relevant words no second opportunity of 5how . ing cause against the. proposed punish1nent is conten1plated either exprcsS?y or . by necessary implication. In other word<>, it is'.Ctear that the opportunity spoken of by para 3 of Standing Order No. 17 is the opportuni.ty to be given to the delin9i1ent to meefte charges framed against hin1.

Further, since the instant

Stanng Order \Vas certified prior to the enunciation of the law by. Courts regarding the observance of the principles' of natural justice such as i-; suance of a charge-sheet, holding vf an inquiry, opportunity to lead evidence, etc. It

erey contains a bald provision for 'giving tl):e accued an oppOrtunity to offer any explanation'. In Other W; Jrd3, diff::re_nt stages in do1nestic inquiry \vere never in the contemplation of the framers.<tof the Standing Order. That being the posilion it would be difficuh to attritbute any inrension to the framers thereof to provide for a second opportunity being given to the delinquent of s.howing.cause against theproposed p_unisijrnent. l368A-E; 369C-H ; 370A-B)

The view of tl:rc Arbitrator as also the view of the High Cciurt proceecl. on

a11 assumption the .Stnding Ordr o 17 d.!{lls with t\VO different stages..concerning disciplinary proceding5 agairist a dlinquent, first holding of~ departn1ental inquiry into the charges where principles or natural justice must be irnpl_i- "'ed and second' the infliction of graver punishment before awarding whch opportu'"

nity io show cause has been provided for ; but the .plain reading of the Standing Order read as a whole does not warrant any such assumption and, therefcire, the coustruction placed on Standing Order No. -17 by t.he Arbitrator or.the High Court is.not possible much less reasonabl) possible. [37JH; 371A B] • ·

' ' .

In the inHanl case; admittedly, opportunity to offr explanation i:i regard to the <illeged mis-col"\, ducr was not oly afforded but was availed of by theco_n c.; rned four workers by submitting their written explanations to the ~1:inai; er whereafte.r the departmenta'J inquiry was held. In other words Standing. 01der No. 17 was fully con1plkd with and what is more the Arbitrator has held that the inquiry was otlierwie f:'iir and valid. [371DJ

Ctv1L APPELLATE. JURISDICTION: Civil Appeal No .. 2Q9 of 073.

(Appeal by Special leave frbm the Judgment and Order dated the 27th July 1972 of the Madhya Pradesh High Coo.rt in Misc"._

Petition No. 129 of 1970)

AND

Civil Appeal No .. 1140 of 1974 (From the Judgment and order dated the 27th July, 1972 of the Madhya Pradesh High Court in Misc. Case No. 365 of 197().)

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• ASSOCIATED CEMENT v. T.C. SHRIVASTAVA (Tulzupurkar, J.) 363-

F.N. Kaka and D.N, Misra for the Appellants in CA. No. 209 .\ -0f 1973 & Foi;, the Respondent No.2 in CA. l.l40/74.

M.K.' Ramamurt/Jy, Vieet Kumar and Naresh .K. Sharnw, for -the Respondent Nos.2 & 4 in CA.209/73 & for the Appellant in 'CA. No.1!40 of 1974.

The Judgment of the Court was deliercd by

TULZAPURKAR, J. The principal question raised for our <:letermination in these appeals is: Whether on its proper construction -the certified Standing Order 17 providesfor second opportunity being

-given to a workman after conclusion of the inquiry into his mis-· >Conduct and before inflicting on him the punishment of dismissal

.and if so whether the enquiry gets vitiated by not affording.him such -Opportunity?

Facts giving rise to the question may"be stated. The Associated Cement Co; npanies Limited. (hereinafter called 'the Appellant') has quarries worked by its department called Kymore & Bamangaon Lime-stone Mines at Kymore, District Jabalpur, M.P, Workers employed _in the sa:id quarries have a unio,; called Kymorc Qu1rry

Karamchri Sangh and the four concerned workmen Ram1 Shanker, llarmapradhan, Emmanual arid Mohd. Rauf (hereinafter tailed "the '.Respondents') were at the material time the office bearers in the

-1.lnion.

In connection with the implementation of the Recommenda- 1ions of Second Central Wage Board for the cement industry, after -serving a strike notice on the' m1nagement of the Appe)lant on !3th 'Septem'Jer,' l 968, the Kara1hchari Sangh and all its Members went

on a strike for 24 hours commencing from.the mid-nig, ht of !9th 'September, 1968 which was accompanied by acts of intimidation, . G 1hreats, ghearoes and unlawful obstruction.

According to the management before the commencement of the strike two meetings -were organized by the Respondents, one at 4 P.M. and the other at 11 P.M. on 19th September at which fiery speeches were made by them wherein they not only instigated the quarry workers to resort to strjke. buhnti\fiiclated and prevented the willing workers from ft ..

going to their work and threatened the supervisory staff and officers with 4ire consequences if they tried to work thejquarries and wha1 is more from the mid-night of 19th September till 4.30 A.M. on 20th September the quatry Manager and the supervisory staff were ghearoed and at 4.30 A.M. the Agent's car stopped at the gate and he was unlawfully obstructed from visiting the "querry premises. Since resorting to a strike without giving 14 days' prior notice as , also the aforesaid acts on the part.'of the Respondents amounted to serious. mis-conduct under the ce\tified Standing Orders applicable to the quarries th.e Management served Charge-sheets dated 3rd of October, 1968 on t])e Rspondents in which four common charges were level: led against all of them; in addition a fifth charge was. levelled against two of them Emmanual and Mohd. Rauf; and yet another 6th charge Was levelled against Mohd. Rauf. The common charges were (a) themselves going on strike without 14 days' prior notice, (b) , inciting and instigating othe~ workers to go on strike, (c) gheraoing the Quarry' Manager and other supervisorystaff between mid-night and 4.30A~M. on 20th September and inciting others to gherao the said staff and (d)-forcibly , and unauthqrisedly occupying the area near. the quarry can.teen between 4 P.M. on 19th Sept. and l A.M. • .on 20th Sept. and insta.!ling and using loud-speakers for inciting the . workers. Shri Emnianual and Shri Rauf were forth.er charged_, with threatening the gheraoed staff with dire consequences, if they moved ' ' out; and Mohd. Rauf was charged iii addition for having Testrained the Quarry Agent from entring the quarry premises. The respon : dents were called upon to submit their explanlltion . in r.espect of the charges to the General Manager which they did; in their Explana tions they by and large denied the charges levelled against them. A departmental enquiry was held against them by Shri H.S. Mathur during the course of which at one stage the Respond'ents withdrew. from the enquiry on 24th October, 1968 on the plea that the Quarry Agent should be examined first which was not bein.g done, whereafter~ the enquiry proceeded ex-parte and on a consideration of the entire

evidence)d before him the Enquiry Officer came to the conclusion that the first three charges were fully _proved and the fourth charge was partly proved against al!the respondents while the additional charges against Emmanual and Mohd. Rauf were also. proved. The Enquiry Report was forwarded to t)1e Genera\. Managerl. who after considering the same and after taking into accou.nt the previous service record of the Respondents by his order dated 31st December, 1968 dismissed the Respondents from service. That order was served: on the Respondents on 30th January, 1969 . •

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ASSOCIATED CEME!<T v, T.C. Sl!R!VASTAVA (Tulzapurkar, J.) 365

A dispute having been raised with regard to their dismissal, by common consent, the same was referred tb the arbitration of Shri T.C. Shrivastava, a retired Judge of M.P. High Court, under sec. 1@cA of the Industrial Disputes Act, 1947 on 14th 'April, 1%9. The . .

Arbitrator gave his Award on 9th February, 1970 whereby he came to the conclusion that the enquiry which was otherwise fair and valid was viti_ated because no second o"pportunity was given to _the Respondentsof showing cause against the proposed punishment before the issuance of their dismissal order as required by the Standing Order ·

No.17; he further held that though before him che Management had by leading evidence proved their mis-conduct by establishing the first three charges against all, the fiiftli charge against Emmanual and Mohd. Rauf (fourth charge be'ing held not to have been proved) the punishment of dismissal in respect of Emmariual and Mohd. Rauf , could be confirmed but set aside t!ie .dismissal in respect of Rama Shanker and Barmapradhan n the ground that while fomenting the strike the conduct of Emmanual and Mohd. Rauf was graver than that of Rama Shanker and Barmapradhan and instead ordered their reinstatement but without back wages. The Appllant challe11ged

the Award in the High Court by means of" a Writ Petition (Misc.

Petition No. 129 of 1970) contending that the Arbitrator had misconstrued Standing Order No. 17 and that no second opportunity was required to be given to the Respondents and that in the alternative . the interference with the punishment of dismissal in respect of Rama

Sha11ker and Barmapradhan was erroneous while another writ petition (Misc. Petition No.365 of 1970) was filed by the Respondents against the punishments that were awarded to each one of them- The High Court by its judgment dated 27th July, 1972 confirmed the Award of the Arbltra(or by dismissing both the writ petitions.

The Appellant.has come up irt appeal' (beiug Civjl Appeal No .. 209/73) by special leave challenging the interference with the dismissal of Rama.Shanker and Burma Pradhan while the Respondents have preferred their appeal (being Civil Appeal No. i 140 of 1974) on a Certificate granted by the "High Court challenging the punishments operating against each one of them. At this stage itJ may be stated that as regards Emmanual and Mohd. Rauf the maiter has been compromised between the-parties which has already ibeen recorded' by this Court with the result that Civil Appeal No.11<\0 of 1974 in so far as their dismissal is concerned no longer survives and the same needs to be dealt with by us only as regards back wages that have be.en denied to Rama Shanker and Burmapradhan.

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WPRIME COURT REPORTS [1984] 3 s.c.R.

In support of civil Appeal N:o. 201} of J973 Counsel for the Appellant raised three contentions before us. In the first place, he contended that the learned Arbitrator as well as the High Court ha.ve erroneously construea the certified.Standing Order No. '17 as requiring a second opportunity being given to a workman at the conclusion of the enquiry into his mis-conduct and before inflicting. upon him th~ punishment of dismissal ; he urgecP"that the <?oncept . of second opportunity being given to a delinquent which obtained under sec. 240(3) of the Government of India Act, 1935. or Art. 311 of the Constitution prior to the insertion of the Proviso to Article 311 (2) could not be invoked or applied to the instant cas.c nor wa$ such second opportunity any requirement of the ordinary Jaw .of the 'land or of Industrial law and in this. behalf reliance was placed on two decisions 'Of this Court in fla; ndard DJwakhanal') case and in Saharnpw Light Rly, l') case. Counsel u'rged tha! on proper construe-• tionof the Standing Order it should have been held that no second opportunity was contemplated thereunder a!ld therefore the finding that the enqniry was vitiated deserved to be set aside and according to him , if the enquiry was valid and was not \•itiated the punishment of dismissal imposed on Rama Sl)anker and Barmapradhan could not be interfered with. In. the alternative coi.msel contended that assuming that the enquiry was vitiated for the reason mentioned by t.he Arbit.rator even than once serious mis-conduct was proved by leading evidence before the learned Arbitrator it was not open to him to' interfere with the punishment of dismissal unless the punish men! was so harsh as to smack of victimisation. In the further alternative counsel contended that assuming that-the Arbittator had power to interfere with the punish.men! in the.insta.nt case having to the facts and .. circumstances he was not justified in setting aside the dismissal of Rama Shanker and Bafmapradhan especially on the grou!'d on which he diq so namely, that the conduct of Sh.ri Emmanual and Mohd. Rauf was more grave tf1an that of. Rama Shanker and Barmapradhan while fomenting the strike ; counsel urged that passively taking part in the strike was distinguishable from the more serious miS-conduct. of fomenting or inciting the strike and all the .retpondents wer; found guilty by the learned Arbitrator of such

s, erious mis-conduct and as snch .no distinction on the distinction on the basis indicated between the two sets of workmen should . have been made in. the matter of punishment, On the other hand coun- . t

(I) [t96l 2 LLJ. 772. (2) [1969] 2 LW. i34.

• ASSOCIATED CEMENT v. T.C. SHRIVA5TAVA (Tulzapurkar, !.) 367

set for the Respon.denis urged that Standing Order No. 17 had been

properly construed by tlie Arbitrator and the High Court and that construction should be upheld and in any case if twoconstructions were reasonably possible no interference by this Court was called for and counsel in thlt behalf relied upon the decision Agnanl (W.M.) v. B2dri JJas and Ors.(1! Counsel further urged that once the enquiry got vitiated the entire field of determining the mis-conduct

a~ also the' purnshment th.erefor became. open and the Arbitrator had jurisdiction and power to consider both the <ispects and1 that the Arbitrator in the facts, and circumstances of the case had justifiably interfered with the dismissal of Rama Shanker and

Barmapnrtlhan and had directed their reinstatement.

From the rival contentions summarised above it will appear clear that the real question that arises in these-appeals is, does the certified Standing Order , No. 17 provide forsecond opporlOJnity being given to a workman to show cause agaiost the proposed punish ment of dismissal, for, it was not disputed before us that if no such second opportunity is contemplated by it then the only ground on which the inquiry has been held to be invalid by the learned Arbitrator and the High Court would disappear and the Arbitrator could not have entered into merits of the case or interfered with the punishment of dismissal inflictd upon Ramashanker and Barmapradhan. The question obviously depends upon the proper construction to be placed on said S.0. 17.

It may be stated that the certified S.0.16 enlists several acts or omissions that constitute 'mis-conduct' and striking work either singly or with other workers witfiput giving 14 days previ?us noiice, inciting whilst on the premises and. worker to strike work and indulging in a Gherao, which would amount to an 'act subversive of discipline or efficiency' are obviously included therein. S.0.17 which deals with punishments and procedure therefor runs thus : .

"17. A worker may be suspended for a period not exceeding 4 days or fined in accordance wfrh the Payment of Wages Act or dismissed without notice or any compensation in lieq of notice it found guilty of misconduct defined in Standing Order No. 16.

(!) '[1963] 1 LLJ. 684. •

lB .

.. .

Ali Orders of suspensfon and fines shall be in writing setting out the misconduct for which the punishment is award-· ed. No officer below the rank of the Head of Oepartment shall award the above punishinent.

All dismissal order shall be passed by the Manager or Acti1ig Manager who shall do so after g;~; ng ac<; used an opportunity to qfferany explanation. Due consideration to the. gravity of the misconduct and the previous record of the worker shall be. given in awarding the maximum punishment.

In the event of a discharge of dismissal, the worker shall be paid off. within the second working day following the discharge or dismissal."

Th,.ciuestion is whether when paragraph 3 0f the S.O. says : "all dismissal , orders shall be passed by the Manager or. Acting Manager who shall do so after giving the accused ah opportunity to offer any explanation", it contemplates giving of a second opportunity to the delinquent to show cause against the proposed punishment of dismissal after he has been found guilty or.the opportunity spoken of is the opportunity to meet the charges in the domestic inquiry?

At the outset the legel position a-s has been clarified by this Court in the Sa!!aranppr Light Railway Co.'s case (supra) may be stated: In the context of certain modification sought .to be introduced in a.Standing Qrder requiring a second show couse notice this Court .has observed thus :

"As regards the modification requiring a second show cause notiCe, neither he ordinary law of the land nor !ht industrial Jaw requires an employer to give such a notice. In none of.the decisions given by the Courts or the Tribunals such a second show cause notice in the oose of removal has ever been demand or considered necessary. The only class of cases where such a notice has been held to be necessary are those arising under Art.3ll.

Even that has now been removed by the recent <1mendment of that. Article. To import such a retirement f(om Art. 311 in industrial matters does qot

appear to_be either necessary. or poper and would be equating industrial employees with civil servants. In our view, there is no justification -0r any principle for such_ equation.

A.SSOCIATED cs>tmff v. T.C. SHRIVASTAVA (Tulzaplirkar, J.)' 369

Besides, such a requirement would unnecessarily prolong A. disciplinary enquiries which in the interest of industrial peace should be disposed of in short time as possible.

In our view it is not possible to consider this modification as justifiable either on the grouhd of reasonableness of fairness and should therefore be _set aside."

It is thus clear neither under the ordinnry law of the land nor under industrial law a second opportunity to show cause against the proposed punishment is necessary. This, of course, does not mean that a Standing .Order may not provide for it but unless the Stand- . jng Order provides for it either expressly or by necessary implication .no inquiry which is otherwise fair an!! valid will be vitiated by nop- . .affording of such second opportunity. The question is whether para

3 of the Standing Order No. 17 provides for such second opportunity being" given to the delinquent ? The relevant words are "all dismissal order shall be passed by the Manager·······a/M giving the accused an opportunity to offer any explanation". The underlined words are wholly inappropriate to convey the idea of a second hear- . ing on opporiunity on the question of punishment but appropriate in the context of seeking an explanation in regard to the alleged misconduct charged against him. An 'explanation' is to be c"alled from the 'accused' which suggests that, the same is to be called for prior to the recording of finding that the delinquent is guilty of misconduct : it is the alleged misconduct that is to be e)Cplained by

B ,

him and not the proposed punishment. On a plain reading of the relevant words no second opportunity of showing cause against the' propose.d punishment is contemplated ither expressly or by necessary implication. In other words, it is clear clear to us that the opportunity" spoken of by" para 3 of S.0.17 is the opportunity to be given . F to the delinquent to meet the charge framed against him .• In this connection it will be pertinent to mention that the concerned S.O.

was framed and came into force on March. I, 1946 and was duly certified on October 16, 1954 under the Industrial Employment (Standing Orders) Act, 1946 i.e. prior to the enunciation of the law by Courts regarding the observance of the principles of natural justice such as issuance of a charge-sheet, holding 0f an inquiry., opportunity to lead evidence, etc. and it is well-known that after the enunciaiio1i of these principles model standing orders have been framed to provide for the detailed steps required to be undertaken ·

during .!\. domestic inquiry. Since the instant Standing Order was certified prior to the formulation of the above principles it merely

{ E

contains a bald provision for 'giving the accused an opportunity t<> offer any exjllanation'. In other words, different stages in domestic; inquiry were never in the contemplation of the framersof the S.O. That being the pqsition it would be di!Iicult to attribute any intention to the framers thereof to provide for a second opportunity being given to the delinquent of showing cause against the proposed. punishment. The latter part . of para 3 merely casts a unilateral obligation on concerned authority or the officer , to give due consideration to the gravitiof the misconduct and the previous record of . t.he delinquent in awarding the maximum pu.nishment.

It is true that the Arbitrator. has undoubtedly taken the view that the opportunity spoken qi by para 3 does not refer to theopportunit~ to meet the charges but refers to the further opportunity being. given to the dJ.'linquent to show cause against the graver punishment of dismisal that may be proposed to be inflicted on . him. But for. reaching such a conclusion he has reso.rted to sorne; . involved reasoning which 'is not warranted by the Standing Order if

read as a whole. According to him in the earlier paragraph which speaks of awarding lighter punishment there is no reference to any opportunity being given to meet the charges but no punishment-not even lighter punishment-can be inflicted without inquiry being held according to the principles of natural justice and if such an inquiry

1s implicit in cases of lighter punishments it would be so in cases of graver. punishmnt like dismissal and since specific mention of opportunity is made in cases of graver ppnishment in the relevant sentence of para 3 jt n1ust have a meaning and the words cannot be, considered a surpulsage, and, therefore, the opportunity mentioned in the relevant sentence of para 3 refers to the second opportunity being given to tile

delinquent at the stage of inflicting the punishment 6f ?ismissal. The Hiih Court has confirmed the view of the basis that the first part of the Standing Order deals with several punishments and requires finding of guilt in respect of each one of them and_ this pro.cedure is, therefore, different from that which has been contemplated iri the last part of the Standing. Orde~ and that last. part dtals only with: the punishment of dismissal arid for that punishment alone makes a special prbvision that no orde.r awarding that J:\llnishment wilJbepassed unless the Manager gives n opportunity to a workman t<> offer his explanation. In our opinion, the.viewof the. Arbitrator as.

also the view of the High Couri proceed on an assumption that the Standing Order No, 17.deals with two different stages concerning qisciplinery proceedings' against a delinquent, first holding of a

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ASSOCIATED CEMc>'-:T v. T.C. SHRIVASTAYA (Tulzapurkar, J.) ': 371

departmntal inquiry into the charges where principles cif natural A justice must be implied and second the infliction of graver punishment

beforJ awarding whicb opportunity to show cause has been provid

ci for ; but the p1ain reding of the Standing Order read as a whole does not warrant any such assumption and, therefore, we do not feel that the construction placed on Standing Qrder No. 17 by .the Arbitrator or the High Court is possible inuch less reasonably

possibl~. The ratio of tis tourt's decision in Agnani ( W. M.) v.

Badri Das & Ors. (supra) is, therefore, not attracted. _

In view of the construction which w~ are-placing on S.O. No. 17, it Wjll be clear that th"o only'8fOUOd On which inquiry 'was held to be invalid by the Arbitrato.r and by the High Court must dis~ . appear. Admittedly, opp)rtunity to." offe~ explanation i~ regard to the alleged miscdnduct..vas not only afforded"but was availed. of by

the con:erned four workers (including !lam1 Shankar and Burma) Pradhan) by submitting thei.r written explanations to the Manager wher.eafter t~ departmental inquiry was held by H.S, Mathur. In . I> other. words S.O. 17 w.is fully complied with and what is more the Arbitrator has held that the inquiry was otherwise fair and valid.

The solitary grou;1d on which the inquiry was held to be invalid having disappeared it must follow that the Arbitrator had no Jurisdiction to enter into the merits of the case or interfere with the punishment of dismissal inflicted upon Rama Shankar and Burma . Pradhan. That part of the Arbitrator's award which has been

confirmed by.the High Court is, therefore, set aside. The alter-·. native contentioas raised by counsel for the Management in these appeals do not survive.

C.A. No.' 209 of 1973 (filed by the Management) is allowed and C.A; No. 1140 of. 1974 (filed by the two workmen Rama Sha:nkar and, -BLlrma pradhan) is dismissed.

There will he no order as to costs.

H.S.K.

C.A. 209/72 allowed and CA.· JJ40/l4 dismissed .

ASSOCIATED CEMENT COMPANIES LTD. E.TC

T.C. SHRIVASTAVA & ORS

March 29, 1984

V.D. TULZAPURkAR

R.S.' PATHAK, JJ.

OA of the Industrial Disputes Act 1947

Tulzupurkar

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• ASSOCIATED CEMENT v. T.C. SHRIVASTAVA (Tulzupurkar, J.) 363-

F.N. Kaka and D.N, Misra for the Appellants in CA.

F.N. Kaka

D.N, Misra

M.K.' Ramamurt

Vieet Kumar

Naresh .K. Sharnw

TULZAPURKAR

The Judgment of the Court was deliercd by

TULZAPURKAR, J. The principal question raised for our <:letermination in these appeals is: Whether on its proper construction -the certified Standing Order 17 providesfor second opportunity being
given to a workman after conclusion of the inquiry into his mis-· >Conduct and before inflicting on him the punishment of dismissal

.and if so whether the enquiry gets vitiated by not affording.him such -Opportunity?

Kymore

Jabalpur

Ram1 Shanker

llarmapradhan

Emmanual arid Mohd. Rauf

of October, 1968

Emmanual

Mohd. Rauf

Emnianual

Rauf

H.S. Mathur

24th October, 1968

Emmanual

Tulzapurkar

T.C. Shrivastava

M.P. High Court

sec. 1

Industrial Disputes Act, 1947

9th February, 1970

Arbitrator gave his Award on 9th February, 1970 whereby he came to the conclusion that the enquiry which was otherwise fair and valid was vitiated because no second o"pportunity was given to the Respondentsof showing cause against the proposed punishment before the issuance of their dismissal order as required by the Standing Order ·

No.17; he further held that though before him che Management had by leading evidence proved their mis-conduct by establishing the first three charges against all, the fiiftli charge against Emmanual and Mohd.

Emmariual

Rama Shanker

Barmapradhan

Rama

Sha11ker

27th July, 1972

Rama.Shanker

Burma Pradhan

Burmapradhan

sec. 240(3)

Government of India Act, 1935

Art. 311

Article 311

ndard DJwakhanal

Saharnpw Light Rly

Rama Sl)anker

Bafmapradhan

Barmapnrtlhan

Ramashanker

Payment of Wages Act

Sa!!aranppr Light Railway Co.

Art. 311

Tulzaplirkar

October 16, 1954

Shankar

Rama Shankar

Burma

Rama Sha


( .·. n

Slkh Gurdwaras .Act; 1925 Section 16~2)(iii)-Gurdwara-Tests /ordetermina.' If on of -, Tv be s.hown irititution established /or use by Sikhs for pu/)lic\lorship. ·

Sikhs and Udasis-Di$/incdcms-What are.

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~ .

A'group of persons .reiding. in .a village and profssing the Sikb r~Jigion made an application to t11e State Government requesting the Government -to declare the religious and ..charitabla institution described in the appliCation at a Sikh Gurdwara. . This application was puNishe~ in the Officiai Gazeue and res poodent No._l filed objections under section 8 of 1he Sikh Gurdwars Act, 19is eontendil1g that the institution was not Sikh Gurdwara and tha1 he was eiuit1 ed to raise the said con'teritiorrbeca!Jse be was the hold.!r of'the hereditary ffice

f mahant of the insit~1ion. . '

The application was forwarded by the State Gvernment undr ··ectio~ t4 to the' Sikh.Gurdwara Tribunal which held tJ:tat th! respondent as the beredi ta-ry holder of the office of mahant of the institution and that the institution w~ ~-~ a Sikh Gurdwara ang was governed by the_ Act. ·

. The respo,1dent, thereupon flied an a.ppeal. in the High Curt which\etd' _that the institution 's set upby a mahant for commemorat.ing the memory of

hiS Guru and that the land o~ wbic; h the institution was set upwhh the grt of Muafi had been donated by. a .Muslim ruler. After considering of [be

etries . in the land records; the High Court fur'thr he!<\ that institution was not only sering as a Gu(d\ara for the worship of Granth Saheb but was also us~ as a Dera or lodging house or Sadhus 'or Faqirs 'of the Udasi Sect and 'that .4.. . there was a duality of fait he;. in the institution; The High Court conciuded lhac - the institution was catering to .th~ religious fews and beliefs of both the sects m.ongst the local pop, ulali.on and that the .. Tribunal was n error in declaring~ that the institution was a: ... Stkb Gudrara, wh1ch woufd permit one of the com. •

'• '

munities to approtiate the institutioo to its exclllsive use and to cleprive the other community or sect frorn the dual use to which the institution has been put evet since ft wa'\ founded or estabtished. Th:: High ourt, coJ_lsequently aUowed the appeal and set aside the cia ration made. by l)e Tribuna 1.

 Dismising the further. appeals this Court , - '

' ... ,., . . . .

 ..

\ . .

S.G.P.C. v. MAllAl'lT KIR.PAR.AM .. • .. . . - 373 • HJ;!LD : 1. The appraisal of the evidence by the High Court is correct and .

nexcetional~ 'fhe evidnce discloses .that the insdtution in question was not $hown to hve been c:.stablished for' use by Sikhs for the purpose of public

wonip• and therefore one of the material conditions for attracting section;

J6{2, till) of the Sikh Gurdwara Act, 1925 was not established. It is immaterial

that at .the time of. presentation oftbe petttion 1t was along with tli.e followers .

<Jf Uasi.Sect used foi. worship of Granth .Sahi~ by the. Sikhs. (3.82EFJ .·

2. In orper .to bring a case under .section 16(2}(iii) of the Act it must not ·.only be established .that the institution was established by Sikhs-for the purpose -of public worship but was used for such worship by Sikhs before and at the time

<>f the presentation .of the petition. 1he. ue of the corijunciive •and' 'clearly .imparts that in order to attract Secton l6(i)(iii) both the conditions must be . • cumulatively satisfied. [380A-.B] ·

Gurmukh Singh v. Risaldar Dtva Singh &: Ors .• AIR 1937 Lahore S77, .ajlowed, '

3. Udasis form an independent sect ·: They do venerate Sikh Scrip'ture!l. 'Therefore, in an institution of Udasis sect, one can visualise reading of Granth Sahib or veneration of Sikh scriptures. Tbat itseff is ot decisive oft he character -<>f tb'e fnstitution. If the succession . was from . Guru to Chela and those Gdrus were f.Uowets of Udasi faith and the institution. was known as Dera of Udasi Bhekh 'and they followd some of the practices of Hindu traditional religion 'that would be completely destru:tive of the character of the institution as Sikh . . ) .Ourdwara. f381E-FJ

Mahant Daram Dass tic. v. The Siate of Punjtlb & Drs.

[19~~] 3 SCR 160 .Hem Singh & Ors. v. Basapt Das aud.Anr., Al~ 1936 PC 93 at IOO.and Pritam l I.Da1s Mahant v: Shiromani Gurdwara Prabha, dak Comm(ttu, C.A. No. 1983 of

'1970 dated 16.2.84 referred to. • . ·

In the instant case, there is no evidence to show that 'the institution was ·(!Stablished for use by Sikhs for the pmpose of public worship. Though the

-totitution may be established by anyone may be a Sikh or follower of any other ·faith, 'but it mu.st established for use by Sikhs for the purp.ose of public wor-

.. ship. "{'he original' grantor was a Musllm ruler put there is . nothing to show that when Gulab .Das Faqir of Udasi Sect .estl'blished the instituton, be did it

~ 'for use bY Sikhs for the purpose of public \VOrship. Later on as the majority of

..the population of the village were followers of Sikh religion -and as Udasis also , venerate Granth Sahib, reading of Granth Sahib may have commenced and •(herefore, generally speaking people may describe, and . revenue record may -show it to be' Gurdwara, btit that would neithr be decisive of the character of

th~ institution nor sufficient to bring the institution•within Section 16(2)(iii) ·-'t)f the Act. [3SODF]

• ClVlL APPELLATE .JU.RI.SDICTION: Civil Appeal Nos. 1685-16S& • n97I .,. •

Appeals by Specialleav~ from the Judgment and.On1er dated

~.1..1971 & .t4.Jl.l969 cf th• Punjab and' Haryana Hiah Courj

I .If

t .•..

... =-···

~/-, ... :

- • ih S.C. Appei- No. 96oi 1970 & First Appeal No. 59 of 1964 ..

-IJ •

-. ' .. . . . ..

. ., . ' Harbans La/, Urmi/a Kapoor, Kamini Jaiswal, Nishi Puri,..

Shahsi Ktran and Thal Singh Mmigal for' the Rspondents.

 - The Jtidginent of the Curt Wits dlivered by

DESAI, J, Whether a. religious and/or charita-ble institution~ situated invillage Malial Khurd~- Tehsil armila 0f Sangtur District.

is a sikh.· duf(fwaia wii~1n the meaning of the expression in the Sikh Gurdwaras Act, 1925 ('Act' for short) is the subject matter_ o1

cBtitroversy between .the parties in this app!al by speciaiierve. . - About 56 persons residing in village Mahal Khurd and profess-ing Sikh religion made an: application to the G<)vermnent of Punjab -on December 23, 1960 requestip.g the GJvernment lo declare the institution more particularly described in the application as a. Sikh Gurdwara .. This aJ?plication_ was publi3hed jn.the Official Gazette-: \vhereupon Mahant Kirpa Ram, respondenJ No: 1. ('respondent' for short) flied <?bjections unde_r Sec._ 8 of tpe Act contending_ tha~. the institution was not a Sikh Gurdwara a-nd 1hat he was entitled te>

raise tliat confentidn because he -was the holder of hereditary . office of mahant of the. institution ..

' The• application was forwarded under Sec. 14 to the Sikll- Gurdwata Tribunal st up undet the Act. Upon rival contentions.

the Tribunal framed two issues asunder:

i' . ,· ~'1. Is the petitioner a herditary office holder of the. Gurdwara?

- 2 .. Is the Gurdwara in dispute a Sikh. Gurdwara?'' .__.

The Tibunal by its judgme.nt dated Jpuary 21 1964 answered Issue No. 1 in favour of the re$pondent holding that he was a hereditary hlder of the ffice of mahant ftof Ule institution .. On Issue No. 2, the Tribunal held that the institution is, a Sikh. Gurdwara-and , is govered by the Act. · ·

The resp_ondentprefered F.A...O. No. 59 of 1964 in the Hig ..

H Court f Punjab and Haryana at Chandigrah. A Division Bench of . the High Court held that the in-stitution uplsct was by Gulabdas for commemorating the memory of his Guru named Jad Guru. The

' '

S.G.P.C. V. MAHANT K~RPARAM (Desai, J.) 375

~- . .High Coqrt furth.er held that the land -on which the instftution was A

' et up with the grant of Muafi had been donated by a Muslim ruler

. named Rai Kala of Rai Kot in favour of Mahant Gulabdas• It was

. .2lso held. that the succes; bn to the office of mahant is from Guru to Ch.:Ja. After ref.!rring to varioJs entries in the land records, it was , held that way b!ck in t861, t!le ins.titution was not only serving as a UlJ_rdwara" for the W.) ship of G anth Saheb but was als~ sed as a

..... .Dera or l'odging house.for sadhusor Faqirs or the Udasi Sect and that there w•lS a Jua:ity of faiths in the institution. After taking all .the aspects into comideration, the High Court concluded that the . . institut1on.in question was cater.ing to the religious views and beliefs

 u

• 0f bot~ the sects amongst the local pop'ulation and that therefore,. C "the Ti.buna.J was in. error in declaring that it w.1~ a Sih Ourdwara

Ill

. which. would permit one of the commu.nities .to appropriate.the

institution to its exdusiv~ use and to deprive the other community ..or sect fro~ the dual u>e to which the institution has .. been pnt evr ·:Since. it wa~ founded or established. Accordingly, the High Court • .allowed the appeal and set aside the declaration made. by. the

Tibunal. · p

Original applicants moved the High Cort for a certificate ··.under Art. 133(1) (af and (c) of the Constitution which was num- .bered lS S:C.A. No .. 96 of 1970. .The High Court on receipt of a

:.report as a result of enquiry directed by it, by its ordf!r dated January

I ' L • 8, 1971 rejected the application .for certificate both under Art. 133 (1') (a) and (c). Thereupon the original appli_cants led these two . ·

.· ~H?Pals by speciaJ leave; one against the. decision -of the High Court reversing the decision of the Tribuna1 and another against the order of the High Court rjecting the applicaton 'for certificate,

Mr. M.N .. Phadke; learned couDsel who appeared. for the . appellant urged that if on evidence the app.eUants (original petitioners) are in a position to show that the institut}on ws -established for use by Sikhs for the purpose of public worship and was used for such . worship 9Y Sikhs, before and at the time of . the presentation of the

pe.tition under subsection (I) of Sec, 7, the i1.1stitution would be a Sikh Gurdwata as conte.mplated in Sec. 16(2) (iii) of the Act.

Proceeding along it was urged that there is evidence to show .and even the High Court has not round to .the co.1trar.y .that the. institu- tion was established for use by Sikhs for the purpose of public worsip and was used for .such worship by Sikhs, before and at the time . ' -cf the presentation oi the petition undet sub-section (l) .of. Sec. 7

376 SUPREME COURT ltEPORTS . [1984] 3 s.c.lt ..

-..(

, A.

. and therefore, notwithstanding the fact that some other members '

belonging to some other faith or sect also' venerate the institution, it. would nw detract from the character of the institution nor would iti be destructive of the character of the institution as Sikh Gurdw.ara .. .

Sec; 16(2) (iii) of th~ Aciprovides that 'if ifi! tribunal finds- . that the gurdwara was established for use by Sikhs) for the purpse

of public worship and was used for such worsi\fp by Sikhs, bfo; re" )!- . and at the time of the presentation or the petition. tinder sub-sec. (l)t

of Sec. 7, the tribunal shall. decide that it should be declared to be a' • Sikh Gurdwafa, and record an order accordingly.' 'Sikh 'is define<! . .in Sec~ 2(9) of the Act to mean 'a person who professes the Sikli

religion, or was kn&wn to be a Sikh during his lifetime/ If a disputdarises as to whether any particular person is or is not a Sikh, the: outcome will depend upon his. willingness to subscribe-to a declara.L tion a'S-prescribd in the Act. Amongst Sikhs, t)lere can be Amritdharr Sikhs-and. Sabjdhari Sikhs: One can-be said to be a Patit if he being 1

a:Keshdhari Sikh trims or shaves .his beard or kcshas or who afternking arit commits any , one pr more of the four kurahits ...

The first questin is: whether .it has bee-n satisfactorily est.abli- .1ihed that the institution was set UP. by Sikhs for the purpose of public== • worship and was used fhr sch ; orship -by Sikhs. The Tribunal' found tht the institution is an old one and. no director.al or ·

dbcmentary evidence . regar'ing the purpse for which it wa!i.. . founded is available. . Reliance was p1aced on the cop'ies of thd-

- evenue records, to 'sho~ how the institution was described in 1'.- . Government Jand records. On appra_isal of the entries, it has beea

concurrently found :that the institution was set up by' Mahnf Gulabdas upon a grant of land m1de to him. It appears a Sanad was issued but it was los{ when the Mahratta-, over ran this part . of

~ 1he. countzy. The High Court 'then .traced the origin of village

Mahl Khurd and recorde_d a finding that the first settlers camt: tc>r G. . tltat area in the beginning of' the 18th Centu'ry and amongst them

were Bir Pal, Garib Da5s and Bhoja.. They . cleared the forest _land , , arid started cultivating he land. The High o-.mrt then.exammed

what area of land can b.ecultivated 'with the help of one pa1r of

~ :bullocks~ After asserting the pr9bative value' of Kafiat-Delzi or

. -w.Qjah. Tasmif1s, Ext. P-21 and F-22, the High ourt concluded that

B,. the muaft'i.e. exemption from payment of land -revnue had. been iran ted to the institution froiiJ. the time village had fil'$t been , founded .\)out 200 years before the .ttcords were prepared, but these record!~

; . •

.. ..

S.G.P.C. v. MAHANT KIRPAR AM (Desai, J.) 377 .

do not help in assciog the purpose for which mu.afi was granted or , the purpose for 'which the institution was established. This conclu- A sion was not commented upon , and deserves to be accepted a~

rcasonaplc inference from the evidence.

. . .. .

Mr. Phadke ho\'lcvcr invited s to xamine jamrrbandi entries and on tlfe strength of them attempted to urge that since remote past the entries describe the iihtitution as gurdwar~. .n-.

, Ex. P~ l is a will dated .May 10, 1958-exccuted by Mahant . Rasi!i Ram by which the respondent was appointed as his chela with a right to succeed to the office of mahant of tbis institution.• . This is a document of recent origin and is not of much assistance. We may next turn to Ext. P-2 datc'd the 25th Baisakh, 1927 corresponding to 1 ~71 A. D. It is a decisipn recorded in a muafi enquiry proceeding in respect of'land admeasuring 2b6 Bigha~ and 16 Biswas then found to be in possession of the institution. It recites that . the land was given to Gulab Dass Faqir . by Rai Kalha of 'Rai Kat real donce:-

bcing his Guru known as Jad Guru who ris the muafidar. It was also found that entries in lnnm register show that the land admensuring J 2J Bighas has been entered in the name of muafldar .and tbat area of land remained muafi to the muafidar with the approval of Rai Nizam Sahib and the remaining land measuring 86 Bighas and 16 Biswas which was in cx.cess of grant should bt! resumed to the Gover

nmcnt afta ohtaining the approval of the Diwun Saheb. Two things ' emt:rge from Ext. P-2. that the original munfi grant wns made by a "Musltm rukr in favour of M:thant Guh\b Dass Faquir of Udasi sect who appears to have set up the institution to commemorate the

memory of his' Guru, Jud Guru. These earlier entries do not support tbe claim ndvanced on behalf of the <rpcllants that the

in:>titution was set up by Sikhs for the purpose ,.of public worship.

Oo the contrary, the institution appcnrs to hnve been set up by . Gulab Da!ls a follower of Udac; i sect and sutccssion to the office of •, l\hlhant i'i by Guru to Chd.t. . .

Rt:frcnce Wa!: next made to Exts. P 7 nnd P8 which appear to be statements of Lambardars nnd P.nwaris in question answer form which show that they hcnn.l from their ancestors that the munfi had, been granted by Rai Knlha to Baba Gulab Doss. by way of Punartlt for meeting the expcnse:s of the D-:ra nnJ D; tl Bhog Parshad Granth Sahib. • Relying on these statc:mcnts it. wns urg(d that at the time of rccordio& lh~ r.tt\!mcnts on April 19. 187~ Granth Sahib was being

• I

. \

J. l '. ; i ', '

I '

. ·. . .. . .. •

378' : .

. .

SUPREMB COURT JtEPOR.lS

. :(1984}3 S.C.R· . .. . . ' ' . . vcnerat'd in the io.stitution and the grnt ws for Bal Bho~ Prd , .• . ·.A-·· of Granth Sahib. There statcmcts suer from the vice of hearsay evidence i!1 as 111uch.as the reference tothe Granth Sahib . for the first time appears in these statements not based on any penon i .

knowledge-but of wha~ thy had heard from _their_ ancestor~: Ex~ . . .

P"~S . purports to be a statement of the then ·. Mahant Ram Dass . : ·.s Muafidar faqir Udasi of the_year 1873. It' shows that the muafi . . . laod was granted by Rai Kalha of Rai Kot to Baw~ Gulab Dass his · . .·. great'grand Guru fo~. Bhog of Gnmth Sahib and for . the e:xpen.ses of .'

. . the Dera and Faqirs. Mr. Phadke urged that the Mahan't. himdr ..

 < has admitted that the grant as for Bal Bhog of Granth Sahib nnd : • ~- that this admission cooo1udes the point. ··· Th~ 1-:ligh Court: declined . . .C to ttct this ad'mission as conclu>ivc on th.-: ground thl.t the admis- .... . . sion wns made more than a century afrcr the originnl grnnt and .

establishment of the institution und three or four generations had . . . . jntcrvencd and_ the Ma.hant was talking about fcts . which had

. bappend tong before his irth. These, in our opinion, are relevant l> considerations for. not treating the admission as 'conclusive more so

because the carli::r .entries do not either r.:fe{ to th; in.stitution as Gurdwara or.m1ke any nentilm of the worship of Granlh Sahib therein. .·

Mr. Phauke then' invited our attention to Ex. P-18 being on E order of ljlasY-Kh<ts Committee of the State of Patiala at 'he rele·

f \ '30t time, :\CCording 'approval to the successionto the offic~ of '

Mahant of the institution. In this order dated June 10, 1.937 tb~

- instutition WJS described as: ' ·· .. . . ''Prem o'as ~-tahan't of oera of Ud.asi Bhc.l.:h • (Gurd wara Sahib) situate at MahaJ Khurd Tehsil Barnala : having died on 18.10.1982, the Administr; tive Committee · recommends appoint.ment of Rikhi Ram Chela of Narain .

Dass us Muhunt on the condition set out in the order.;• : •

. . •G :rhis order wus 'signed by Her Hihne ss Mharani -f Patiala,· the thc:u Prime Minister and Revenue M inistcr n'mongst otltrs. Mr.

Phadke emphasised that the institution apart fron\ bing ·.described as. Dera of Udasi Bhdh is also de!scribcd as Gurdwara Sahib and. therefore, it would show that WJ.Y back in 1937 the State nuthtJrities 'U had ac_~(ptcd the institution to be a Gurdwara. \Ve are not irnpres,

ied by the submi~ion for lb¢ obvious reason that the expression . 'Gurdwura' is in the bracket and primarily th~ institution is:dccribcd .. as era o( U~<lsi Bhckh.. C'onceding that the use of the txprcssion ·

< ·•

s.G.P.C. v. ~AHANT KiRPARAM (Desai, J.) 37'j.

- . OCoera' does not militate against the institut1on being a "Sikh Gut A dwara as held by this Court in the decision in Civil Appeal No. 446 --of 1962 rendered on November 9, 1984 wherein, Sarkar, J ... speaking for tbe Court observed that. 'Dera' in many cases was synonymous :with a 'Gurdwara', a description of the institution as Dera of Udas'

'Bhekh would certainly have a distinct connotation Showing that it. was an Udasi institution as recognised by the highest State authori-

. B. ties. . The expression •Gurdwara Sahib • in the bracket may at best indicate .that the Granth Sahib was also venerated in the institution.

Mr. Phadke never drew our attention to xt. P-23 being an e-,; tract from the,. register of mutations relting to Muza Mah.al Khurd dated September 27, . 1984. The entry under the column ·· .. name of owner' with description rads: "Shri Guru G:anth Sahib -situate in the Gurdwlra :of tl1e village under the management of

Rikhi Ram chela Partap Dass Faqir Udasi'~ '.Jn fact, these entries

apear : to have been 'made in implementation of the order of the Jjlas-1-Khas and has no independent probative value. Ext. P-24 i.s a similar eK.tract dated October 1; t959 and doesnot advance the ase of the appllants. any further.

Not much reliance w'as placed on the .oral evidence led by the .parties and therefore we refrain fro1n .. refcrring to it.

On the evidence as herein discu5sed, the question Is: whether . . . ·he view taken by the High Court "that the institution catered to

w_orship by people belonging o two different faith~ , . naine.Iy; Udasis :.and Sikhs is reasonableand proper or calls, for inte.rferenc~7

In our opinion, the view . of the High Cour't. is reasdn_<ble, prop:!f and jut on the evidence placed on record, There is evidence to show that Gulab Ihs who founded the institUtion Whs an Udasi ·Fattit. It is satisfacto-rily es"tablished that the succession to the office -of Mahant is from Guru 1o Chehr. H appears that the express'ion ., G.urqwa'ra' qualifying he Dera of Udasis B.hekh in "the Government

records at a much later date. It is established that tne origina1 gra'nt' was by a Musliin ruler in favaur of a P:1qir and S1.dhu 6f Uda'i sect. . On' this evdence atle'ast a negative con.c1usio~ would satisfactorily

emerge that the appellants have , failed to prove that t was an :institution set up for use y Sikhs-for the purpose of publi~ worshp.

It must be conceded that nearly a centu'ry after the setth1g up . r the institutio:1, Granth Sahib was venerated and read in this

• # F.

• 380.

SUPREME COURT REPORTS • [1984] 3 s.c .. R ..

istitution. ·.Does it provide conclusive evidnce that the institution was set up and used for public worspip by Sikhs? In order to bring the case UJ1der Sec. l6Ci) (iii) it must not oly be established that .. the institution was established for use. by Sikhs for the purpose of

public worship but was used fo:r such worship by the Sikhs before and at the time of the presentation of the petition. The use of ·-the . conjuctive 'and, dearly imports that in order to attract Sec. 16(2)-

. (iii), both the conditions must be cumulatively satisfied.

Not was only that it must satisfactorily established that the institution was established for use by Sikhs for' the 'purpose of public worship . . .- but was used for such worship . by the Sikhs before and at the time of the presentation of the petition. It was so held in . Gurmukh Singhv.Risaldar Del'a Singh'& Ors.(1) and it our opinion tbatrepresnts the correct interpretation of Sec.._ 16(2) (iii). In fhis case- ' there. is no' .evidence to show tha.t the institt}tion was established for useby Sikhs for the purpose ofp\lblic wor§.hip. It must be conce-· ded hat th~ institution mal; be established by anyene, may be a Siz -

or follower of any other faith, but it must be establihed for use by- -Sikhs for the prpose of .wqrship. One can therefore,. ignore the

fact hat th~ Q_riginal grantor was a Muslim. ·ruler Rai Kalha bu~ there is nothing to show that when aulab Dass Faquir of Udasi sect established the institution, he did itfor .use by Si.khs for the pur- . pose of.public worship.

Later on, as the majority of the population of the village was follower of Shik-h religion. a:nd as Udasis a1S'<>· Ventate Granth Sahib, reading of Qranth Sahib may have com-.-

me:pcd and 'therefore, generally speaking-_ people may describe and. revenue record may snow .it to .be Gurdwara but that would neither be decisive of the character of the-institution no_r sufficient to .bring: the institution within Sec. 16(2)(iii) <?f the Act .

It is at this stage necessary to point -opt the distinction between Sikhs nd _ Udasis. In the past ft was attempted to be urged· that Udasis are a mee order of Shikh preaqhers and that'there is no

differenc~ between two faiths. - In fact it was urged that they are. not 'two separate faiths 'but two seperate interpretations _of the -sae: faith.: Repelling this contention way back i~ Jfem Singfz. &. Ors. v.; . Basm1t Das and 1hr.e>. It was observed as under ;

(l) AIR 1937 Lahore 577 • . (2) AIR 1936 PC 93 at 100. . '.

I .

.. __..,.

. '

S.G.P.C. V. MAHANT ~IRPARAM (Desai, J.) 381

"Indeed tlle Udasis do .not appear. to their Lordsliips to.have been a merorde'r of mendicant preachers among the

Sikhs. Nor can it be held proved that they were merejy Sikhs who had lapsed into Hindu practices. On the con- . trary, they appear. to have a long .and independent history as a seperate sect or persuasion occupying a position some- . where between the Sikns and the orthodox Hindus. The

differences in belief as well as in practice between Sikhs and

Udasis -deserve to be described s seriou~, extesive and inveterate and some were outwardly striking.'~· ·

• . .

At another stageit was observed that since tbe time of Siri Chapd, the founder of Udasi sect there c.ame into existence a sect of Udasis who, wbile uing the same sacre~ writings as the Sikhs; kept up much more of the 6Jd Hi11du practices, foiiowed

asceticism, were given to the veneration of Samadhs and tom.bs, . =and continued .. the Hindu, rite' concerning birth, niar!iage _and

Sbradh. It was also obse-rved that the Udasis so far as the lnatter can be decided by beliefs and pn!ctices, are, from the point of view • of Sikhs, schisatics who separated in the earliest days of the movemen! and never merged thereafter. It wo.uld thus appear that Udasis form an independent sect. They do venerate Sikh scriptures. There fore_, in an institution of Udasis sect, one ean visualise r'eading of - Granth Sahib or . veneration of Sikh scriptur.es. That itselfis hot decisive of the character of the insthution. On the contrary, jf the

j • succession was from Guru to Chela and th@se Gurus we.re followers ' . of Udasis faith and the institution was known as Dera of Udasi Bhekh an~ they followed some of tha practicesof Hindu traditional ·

re]igion that would be completely destructive of the character of the institution. as Sikh Gu1dw(\ra. In a. very recent decision of this Court in Pritam.Dass Mahant v. Shirr; mani Gurdwara Prabhandhak Com• mitteeP> it has been held that mere reading of Gfanth Sa:hib or yencration of Sikh scriptures is not decisive of the characer of the institution because Udasis are midway between, Sikhs . on the one

hnd "and Hindus on the other !lDd that the Udasis also venerae Granth Sahib. Earlier also thi~ view has been consistently take_n. by, this Court as will appar from the .decision of this Court in Mahm1t - Dh.aram Dass etc. ~."The State of Punjab and Ors :(~) ·

(1) C.A. Eo. 1983' of 1960 dated 16.2.8-4 (2)" [1975] S.C.R. 160 at 168

:B

. ~-

'F

'- 382

SUPREME COURT REPORTS

(1984] 3 S.C.R

''They do not subcribe to idol worihip and poly- . .theism, nor do _they have any Samadhi ilf their shrines. The teaching of Sikhs was against asceticism. They believe in Guru Grarith Sahib, which is a Rosary of sacred poems, exhortation!ietc. Duriag the time of the Sikh Gurus, the ·

Gurdwaras were under their irect supervision and control or under their Mascnds or missionary agents. After the death of Guru Gobind Singh the Panth is recognised as th~ corporate ' repres'entative of the Guru on earth and thereafter they were managed y tbe Panth through tht.ir Graotliis and .other sewadars who were under direct supervision of the lcal San gat or congregation~ During Mahraja Ranjit Singh's time Sikhism became the religion of the State and large estates and Jagirs were granted. to the Gurdwaras, apart from the Jagirs

which had been earlier gra-nted dUTing the Mughal period.' The position 6f the Gurdwaras changed during British regime. The Mahants who wwe in charge o.f the Sikh . tiurdwaras .could either:. be a Sikh Mahant or Udasi .•

Mahint." ·

. .It thus clearly appear~ that t'he apprisal of the evide.nce .by . the Hlgh Court fs correct and . unexceptional and-weight of the evidence disCloses that ihe institution in questi'on was not shown to . have been estblished for use by Sikhs for the purpose of public wotship and therefore one of'the material conditions for attracting Sec.:l6(2)(iib of the Act is not'estab)ished. It is immaterial that at

• • • • • ' the time of presentation of the petition jt wM;· along .with the follower of Udasi sect used for worship . of Granth .Sahib by the Sikhs. We broadly. agree with the view taken by the Hih . Court 'therefore these appeals fail and are. dismi!!sed with costs. Hearing fee 'in one set. •

N.V.K.

.. ,.

. '

Section 16

section 8

Sikh Gurdwars Act

Granth Saheb

Sikh Gurdwara Act, 1925

section 16(2}(iii)

Udasis

Chela

Gulab .Das Faqir

Section 16(2)(iii)

Harbans La/

Kamini Jaiswal

Nishi Puri

Shahsi Ktran

Thal Singh Mmigal

DESAI

Sikh Gurdwaras Act, 1925

Mahant Kirpa Ram

About 56 persons residing in village Mahal Khurd and profess-ing Sikh religion made an: application to the G<)vermnent of Punjab -on December 23, 1960 requestip.g the GJvernment lo declare the institution more particularly described in the application as a. Sikh Gurdwara .. This aJ?plication was publi3hed jn.the Official Gazette-: \vhereupon Mahant Kirpa Ram, respondenJ No: 1. ('

Sec. 14

V. MAHANT K

RPARAM

Mahant Gulabdas•

Art. 133(1)

Art. 133

M.N .. Phadke

Sec. 16(2)

Sec. 7

Sec. 7

Mahl Khurd

Bir Pal

Garib Da5s

Bhoja

Phadke

Mahant . Rasi!i Ram

Gulab Dass Faqir

Rai Kalha

Diwun Saheb

thant Guh\b Dass Faquir

Gulab Da!ls

Udac

Baba Gulab Doss

Granth Sahib

Mahant Ram Dass

Phadke

Granlh Sahib

Phauke

Desai

Sarkar

Guru G:anth Sahib

Gulab Ihs

Udasis B.hekh

Sec. 16(2)

aulab Dass Faquir

Sec. 16(2)(iii)

S.G.P.C. V. MAHANT

Siri Chapd

Dh.aram Dass

State of Punjab

Guru Gobind Singh

Mahraja Ranjit Singh


' 37

COMMISSIONER OF WEALTH TAX? KANPUR

M/S. J.K. COTTON MANUFACTURERS LTD.

February 28, 1984

(V. D. TULZAPURKAR AND SABYASACHI MUKHARJI, JJ.]

W•alth Tax Aci. 1967. Sections 2(m), 4(3), 5 and 6-W1a/th tax-Deduc tions-Sett, ement allowing payment in instalments-Instalments unpaid and showed i~ balance sheet, as "debt"' owed by assessees-- Whether allawable dedifc- ct ion-Whether 'debt owed and outstanding' .

' I

,_\A

. Words & Phrases : "al/ the debts . owed by th1 assessee"-M, aning of- •C S. 2 (m) Wealth Tax Act, 1957.

As a result of proceedings taken and 'settlement arrived at in 1952 under the Taxation on Income (lnvestigiltion COmmission) Act, 1947 certain sums were determinecl as payable by 'the respondentsassessee-ccimpii.nies on its secreted profits, and schemes for the payment of the said liability l!y instalments were I; iid dowh. . .

The assessee:-companies claimed th3.t the balance of the demand that had remained unpaid was a debt owed by it and should be "allowed as a deducion .. while computing its D.et .. wealth for te concerned year of assessment (1957-58).

The Wealth-tax Officer computed the net-wealth. of each company by adopting the figures of assets and liabilities as shown ih their balance-sheets E as on their respective valuation dates after making sucQ 4<lj_u_:ttpie'nts _as considered necessary but in both the cases he disallowed the aforesaid claim for deduction on the ground that the liability was outstandina for more than

12 mon!Hs on the valuation dates. ·

The Appellate Assistant Commissioner confirmed the disallowancc.

He took the view that the tax liabilities assessed by the Income-tax Investi- ~F ga\ion Commission had no relatjon to .the assets or the declared wealth of

assesseC<ompan_ies, which were the basis of the wealth.tax assessment and r. since the assets_ on which. the said liability.was aSscssedJ namely, the secret profits, were not included in the declared assets the disallowance was

. ' justified. . .

In further appeals , by theassessee-co111panies to the Tribunal, the

. G Tribunal conJirmed the !lisallo,..aoce .011 the ground that sections 2 <m) (i), 2 (ml (ii), 5, (!)and S (21. inpicated a scheme of the Act which u&gested that

!lebts which qualified for deduction in . c<!lll.lluta.tion of the net-wealtq w.ere only those which were incurred in. relation to the assets declared by tho assessee, that is to say, In, COD)P, Utlpg. he netcfealth the principle to be adopted was that when an)' assets were included the i:orresponding!lebts

should be allowed, but that when such assets were ecluded or were liable to

 H be excluded from the net'wealth the"eotresponding debts should also be ogluded.

' SUPREME dotlllt REPORTS (1984] 3 s.c.R..

In the Referi:ces to the High Court, at the instance of the assessee .. companies the Tribunil's conclusion was overruled and the High Court opined that the deductions claimed were allowable in cpn1pting the net wealth of the assessee-compan ies.

In the appeals to this Court; by the Revnue on the question whether the balance of the payments payable by the Companiess 3 result of the findings and orders of the Income-Tax Investigation Commission in the

setlements made u'nder the Taxation on Income {Investigation Commission) Act 1941 are eductable as, debts owed by them in determining the net wealth of the companies.

Dismissing the appeals,

 HELD : [BY the Court] Section 2 \Ill) .. \iii) i'equires that lhe tax liability must be one which is "payable in consequence of any order Passed" -under any \w relating to taxation on income or rofits etc. suchli11bilitY so payable under an order must remain "outstanding for a period br more than 12 n19ntbs0n the

valuation_ date". The expression 'outstandh_1g' in section 2 _(n1) (iii) la)· and

(b) will have_to be construed in tpe-background of the phrase "amount of tax ,, .... payble in consequence Of an O_Cdr,"· arid in that Context it ffiust Inean remainfng unPaid affer the obligation to pay is inurred. [48D, 48G]

In the instant. case, it was the, admitted p_osition before the Tribunal that µndr the scheme of instalments sanctionCc\ ip the, settlements lhe two. sums, in respect thereof deductions were claimed, had not becon1e due for' . payn1ent before the valuation dates.

Th~ deductions clitned, thcrCfore, 1

do_ riot fall within the exclusionary part containe.d in section 2 (in).' (iji) of the Act. [48H-49Al . . . .

Per Tulzapurka r, J.

Tlte scheme emerging frotn the keYprovisiolls ot the Act, sections ' .. z' (m), :r and-4 clearly show tht barring those . debts which fa 11. \vithi.n /l)e

exclusionary part of section 2 (m) all other debts owed by the assesSee 11ave to be deducted from the aggregate value _of the assets .belongiagto him ori the

:P :valualion date; In order to get disqualified for the purposes of tleduc'tion a debt Jnust fail withi~ _tlte .exclusionary part and there is nothing, , in.Jhe

~; eJ:clusionary part -which suggest~ -tb{lt_ the debt-must- "either byre1~_tap1~,-:to

:· any iissei-at all oJ: if it is relatable to any ass>!t; such asset ust, Pe i~.clu.

:-· .d.ed iq the book$ of accounts Or the Palance s:heet , Of Sfte assesee bef9re.a depuction in respeet thereof is allowed. [450D]

I~· the instant_ cases, the ecret profits admittedly_ecirne'd by the. assessee-compnies related _to an aSsessment year priorto September, 1948 (as proceedings under TaxatiOn on lncOme' (InyCtigtol! _CommiS_sion) _Act,

1947. could be taken only in respect of lhe asses.sment Yaar prior to 1.9°;1948) and the ta~ liability in respect thereof was determined. in 1952, bqt the valuation dtes are 30.6.1956 and 31.12.1956, [47D] ' Annamma .Paul Perlncherry v.- Commissio_nei~ of Weal/h-Tax,. Ke/14/a 88 I.T.R. 204 and Conimlssio.ner of Wealth-Ta~, Kanpur v. J.K.: Jute Mills Co. Ltd., 120 I.T.R. ISO, approved .

' "

, d.w :r. v J.K. corroN (Tulzapurkar, f.)

[Per Sabyasachi Mukharji J.]

There is no evidence to show whether the profits had remained wih the 'assessee-companies either in the form of assets in the Balance sheet or . otherwise.· The re1vant valuation dates-were n1uch later. Had there ben .any finding that these profits, in some form, .either as assets in the BalanCe

Sheet or otherwfse were with the' assessee. It could have perhaps been . ' examtnd whether so long as the assessee does not brii1g those profits in the computation of the wealth, the assessee would be disntitled to the deductions

of Jiabilities in respect of the same. These should have been examined by the Wealth-tax Officer. with the aid of the principles of section 106 and section 114 of te Evidene Act. Had that been done) it could have, perhaps been examined whether by the principle of purposive interpretaion, in orrler the giVe effect to the intentiori of the legislature in enacting the Wealt.h Tax and evolving the scheme of settlement under .Taxation [On Income (lnvcstigtion CommissjOn

ACt, 1947, whether the assessee was entitled to the deduction Of these two tax liabilities. [50 A-DJ

ciimmissionq of Wealth-Tax, West Bengal Ill v. Bana.rashi Prashad iediQ, 77 I.T.R. 159 and Commissioner of Wealth-Tax, U.P. and Others v, Padampat Singhania, 84 l.T.R. 799, approved.

CIVIL APPELLATE JuRISDICTION: Civil Appeals Nos.1179-1180 (NT) of 1973.

Appeals by Special leave from the judgment and Order dated the 29th Aprif, 1970 of the Allahabad High Court in W. T. R. Nos. 327 & 330 of 1964.

T. A. _ Ramachandran, Mrs. Janki Ramachandran, Miss A, Subhashini and Mrs. Sarla Chandra for the Appellant.

S.T. Desai, B. P. Maheshwari and B.P. Singh.for the'Respon• p dents.

The following Jlidgments were delivered

TuLZAPURKAR J, The only question raised in these appeals is whether the two sums of Rs. 5,49,041' (in the case of M/s J. K.

Cotton Ltd.) and Rs. 21,61,788 (in the case of J.K. Jute Ltd.) being the balance of the demands payable as a result oft.he findings

.· and orders of the Income-tax Investigation Commission in the settlements made under the Taxatio.n on Income (Investigation Commls• sion) Act (30of1947) are dedu9tible as debts owed by them in determining the net-wealth of these companies ?

The question arises in these circumstances :

" B

..,

SuPREME COuRT REPoRTS li 9S4] 3 s.c.R. .

M/s, J. K. Cotton Manufacturrs Ltd., the assessee, is a limited company engaged in the manufacture of cotton textiles,. etc. and the assessment involved is the wealth-tax assess!iient for the year 1957- 58 based on the valuation date 30.9.1956. It appears that as a result of proceedings taken and a settlement arrived at in 19S2 under the Taxation on Income (Investigation Commission) Act1947, a sum of Rs. 15,99,041 was determined as payable by the assessee company on its secreted profits and a scheme fqr the payment of the said liability by instalments was laid down. Out of this, a sum of

Rs: J0,50,000 had been paid before the valuation date (30.9.1956) and Rs. 5,49,041 .remained .unpaid on that date. The assessee company claimed that the balance of the demand that had remained unpaid . was a debt owed b/ it and she>uld be allowed as a deduction while computing its netwealth for the concerned year of assessment (1957

58) .

. In the case of Mis. J. K. Jute Mills Co. Ltd. the assessmePt

.. i11; v, oled under the Wealth-tax Act is also for the assessment year 1957-58 but the valuation date is 31.12.1956. In the case oft\lis company also as a result of proceeding taken and a settlement . arrived .at irt7 1952 under the Taxation on. Income (Investigation

Commision) Act 1947 a sum of Rs. 112,93,392 was determined as

'pyable by it on its secreted profits and a .scheme for the paymeht of the said liability by instalments was laid down. Out of tlils; a sum.of Rs. 21, 31, 604 had bean paid before the valuation date '(3L12.t956) aild Rs. 21,61,788 remained unpaid on that date. The assessee comj>any claimed that the balance of the demand that liad remained unpaid was a debt owed by it and should be allowed as a

llductioh while computing its net-wealth for the concerned year of assessment (1957-58).

. - . . .

The Wealth-Tax Officer.computed the net-wealth of ea6h com- ; oony by adopting the figures of assets and liabHities a.s shown in their balance-sheets as on their respective valuation dates after Jn\lldPg such adjustments as he considered necessary but in both the

caes he disallowed the aforesaid claim for deductiOn on tne ground that the.liability was outstanding for more than 12 nionths o\'t the valuation dates. The Appellate Assis.tant Commissioner confirmed the disaUowance of the amounts but for different a reason, Hetbok the view that the tax llabilities. assessed by the Incoine-tn I.nvesti . gation Commission had no relation to the iisets or the \iecfar'ed

wealth of the assesse, e compal\ies, whic~ '!'(ere tre basis of the. wea Ith

tx assessment and since the assets on which tlie aid liability was

,,...

c.w.±. v 1.K. corroN (Tlzapurkar J.) 41

assessed, namely, the secret profits were not included iu the declared assets the disallowance was justified. In further appeals preferred by the assessee:companies to the Tdbunal, the reasons given by the Wealth-Tax Officer as well as the Appellate Assistant Commissioner were assailed but without ex.pressing any view on the validity or otherwise of the reason given by the Wealth-tax Officer, the Tribunal confirmed.the disallowance by substantially agreeing l)'ith the view expressed by the Appellate Assistant Commissioner. The Tribunal pointed out that in s.2 (m', which defines'net wealth', sub-s. (i). excludes debts located outside India in the case of certain class(IB of assessees, in w.hose case assets located out side India are ecluded; that s.2 (m) (ii) bars the deduction of debts secured on or incurred

jn relation to exempted assets mentioned ins. 5 (l) and 5 (2); that

s.4 (3) permits the deduction of debts relating to assets, which do not stand in the name of the assessee, but. which are nevertheless to be incjuded in the net wealth of the assessee by virtue of the provi sion in s. 4 (I) ; tliat s.6 (I) repeats 'the provision in s. 2 (m) (i) ' excluding the . debts located outside India . where corresponding assets are excluded; and according to the Tribunal these provisions indicated a scheme of the Act which suggested that debts which ·

qualified for deduC!ion in computation of the net-wealth wr~ only those which were incurred in relati!n to the assets declared by the

assessee, that is to say, in computing the net-wealth the principle to be adopted was that when any assets were included the corresponding debts should be allowed but that when such assets were excluded or were li(lble to be excluded from the .net-wealth the corresponding . debts should also be excluded. Th e Tribunal further observed that . since in the case of the tw6 companies it was not disputed on their behalf that the tax demands made by the Investigation Commission were in respect' of secret profits which were not disclosed in their

- books of atcounts and since it was also conceded that the assets , 'Shown in the balance sheets did not includJl any assets acquired out :of such secret profits the balance of tax demand (Rs. 5,49,041 in '.one case and Rs. Zl ,61,788 in the other case) was not deductible.

fa the References that were made at the instance of the asses~ ""see-companies, the High Court took a contrary view. It over-ruled :the Tribunal's conclusion that the provisions relied"upon by it indica• .· te, d any scheme leading to the principle that only such debts as were ''rncurred in relation to the asset declared r disclosed in the books • '.9ualified for deduction because the concerned provisions merely ''dealt with typical situations or special categories of assets and no

....

.. C

:a

SUPREME COURT REPORTS [1984 J 3 s.c.i.

general pattern or scheme as suggested could be inferr'ed therefrom.

The High Court therefore opined that the deductions claimed were allowable in computing the net wealth of the assessee-companies.

The revenue has .come up in appeals to this Court.

In support of these appeals Counsel for the revenue rised. two contentiqns before us. In the fir'st place the counsel canvassed for the acceptance by us of the Tribunal's view that the scheme of the Wealth Tax Act shows that where a liability is incurred in relation to anJi asset, that liability is not deductible if the asset is, for any reason,. not included in the net-wealth and in this behaif p'rovistons contained in sections 2 (m) (i) and (ii), 4 (3), 5 and 6 of the Act were relied upon. By way of elaboration it was further urged that since under the settlements made under the Taxation on Income (Investigation Gommission) Act, 1947 certain tax liabilities were .deter. . . mi.ned as payable by the assessee-compariies, the assessees inust be taken to have ad'mitted having made secret profits and as Euch only the assessees could.know about the use OP destination thereof and it was for them to show that became of the secret profits and in the absence of any explanation from them in that behalf the secret profits must be presumed to be with them as on the valuation dates and when. such was the position •if such secret profits or other assets . acquired out of them were not brought into or Were not reflcted in the Balance Sheets the tax liabilities in relation ther.eto could not be allowed to be deducted. Counsel pointed out that the presumption which he is seeking to raise against the assessees as above was only a different facet of the same rule w\lich obtains in Income-tax cases that once a sum is found credited in ihe assessee's bOoks then it is for hiin to prove the nature and source thereof failing which the cash credit is regarded as his income from undisclosed source (a rule previously enunciated by judicial decisions which now finds a statu tory recognition in s:68 of the Income.Tax Act, 1961). Secondly, counse I contended that since the deductions claimed were in respect of tax liabilities which were outstanding for a period of more than 1.2 months on the_ valuation dates the deductions could not be allowed under .s.2 (m) (iii) of the Act. On the other hand counsel for the assessee-companies supported the view taken by the High Court on the first contenti.oti and as regards the secop.d 'it was urged that since the same did not find favour either with the A.A.C. or with the Tribunal and was not even urged before the High Court the Revenue must be taken to have given it up as being without any substance, Jn any event the tax liabilities herein do not fall within the exclu• sionary provision contained in sec. 2 (m) (iii). '

c.w.t. v i.K. COTION (Tuizapurkar, i.)

In order to examine, the first contention it will be necessary to est out the concerned provisi; ns includillg the charging provision contained in .sec. 3 of the Act. Section 3 provides that there shall be charged for every assessment year. commencing from 1.4.1957 a tax, called Wealth-tax, in respect of the net-wealth on the corresponding valuation date of every individual, Hindu Undivided Family and Company at the rate or rates specifiedin the Schedule I. "Net wealth" is defined in s.2 (m) whiCh runs thus :

2 (m) "net wealth means the amount by which the aggregate value.computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the .assessee on tire valuation date, including assets required tel

be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than-

(i) debts which under section 6 are not to be taken into account ;

(ii) debts which are secured on or which have been incurred in relation to any property in respect of which wealth-tax is not chargeable under this Act ; . (iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure Tax Act, 1957 (29 of 1957), on the Gift-tax Act, 1958 (18 of 1958),-

(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payab.le by him; or

(b) which, although not claimed by the assessee as not being payable by him, is nevertheless out- . standing for a period of more than tewelve months on the valuation date;" Section 4 (1) provides for inclusion of certain assets in computing the net-wealth of an individual-assets which on the valuation date are held not by that individual but by the spouse or by a minoo child.of such individual to whom they have been tvansferred by such

SUPREME COURT REPORTS [1984] 3 s.c.lt.

• individual directly or i.ndirectly, otherwise than for adequate consi- " deration, etc; in otherwol'lls such assets held by the spouse or the minor are deemed to be the assets of such individual; and in respect of such deemed assets sub-sec. (3) provides :

"'(3) Where the value of any assets is to be included in the net wealth of an assessee in accordance with clause (a) o'f subsection (1) or sub-section (IA)

(a) they shall be deducted from such value.any debts owing on the valuation date by the transferee mentioned in C that clause in so far as such debts are referable to such

<; D

il F

assets, and

(b) the provisions of section 5 shall apply in relation to such assets as if such assets were assets b.elonging to the assessee."

Secti.on 5 exempts certain assets held by an assessee from being . inCiudedin his net-wealth and provides that Wealth-tax shall not be payable l)y him in respect of those assets and then follows a list of a large number of such exempted assets. Section 6 deals with exclusion of assets and debts outside India and provides that in computing the net-wealth of an individual who is not a citizen of India or of an individual or a Hindu Undivided Family not resid.ent of India or resident but not ordinarily resi<lent in India, or of a company not resident in India during the year ending on the valua• tion date, the value of assets and debts located. outside India and the value of assets in India of the types specified in cl. (ii) shall not be taken into account.

The question is whether the aforesaid provisions of the Act on which reliance has been placed by counsel for the revenue indi- .;;> G cate a scheme of the Act sugges9ve of the principle that only such debts as are incurred in relation to the assets declared or disclosed in the books qualify for deduction in computing the net-wealth of an assessee ? In other words, do these provisions show that in com• puling the net-wealth the rule to be dopted is that when any assets

~. are included while aggregating the total assets the corresponding U H '" debJs should be allowed but when such assets are excluded or iire

 .. liable to be excluded the corresponding debts sho1Jld also be .. excluded ? ·

. .,.

--.

C.W.T. v J.K. COTTON (Tu/zapurkar, J.)

4S,.

 Ona careful analysis of the aforesaid 'provisions it seems to us

car that the key provisions are the charging section and the defini~ tion of the net-wealth givn in sec. 2 (m). Under se'c. 3 wealth-tax is chargeable on the net-wealth held by every assessee on the valua tion date and 'net-wealth' under sec. 2 (ml means the excess of the aggregate value of all his assets wherever located (computed in

ccordance with the Act) over the aggregate value of all the debts . owed by him on the valuation date other than the debts which fall within the exclusionery part of sec. 2 (m). The scheme emerging from the key provisions clearly shows that barring those debts which fall within the exclusionery part of sec. 2 (m) all other debts owed by the assessee hav.e to be deducted from the aggregate value of the assets belonging to him on the valuation date. In other words, in order to get disqualified for ihe purposes of deduction a debt must fall within the exclusionary part and there is nothing in the exclusionary part which suggests th'llt the debt must either be relatable to anY asset at all or if it is relatable to any asset such asset must be ·· Included in the books of accounts or the balance-sheet of the asses• . see before a deduction in respect thereof is allowed. If such were the intention of the Legislature the exclusionary part of sec. 2 (m) would have made a specific provision in that behalf by adding an 11ppropriate sub-clause therein. In the absence of such a provision beiq.g found in the exclusienary part of sec. 2 (m) it would be diffi-' cult to accept he contentiOn of counsel for the revenue which in substance requires a restricted meaning being given to the expression 'all debts' occurring therein in the context of its deductibility under the Act and the acceptance of such a contention would lead to anomalous results which could .be demonstrated. For instance, where an assessee has taken an over-draft from the bank for the purpose o~ carrying on his day to day business and the over'draft Is not utilised for acquisition of any tangible asset for the business then on the argument of counsel for the Revenue such overdraft woulcl become disallowable beause the liaoility is not referable to any asset reflected in his books but obviously under the scheme of sec. 3 read with the definition of net-wealth und.er sec. 4 (m) such a liability will have to be allowed as a debt owed by the assessee in .computing his wealth-tax. Similarly, if a limited company after earning a certain amount of profits in a year were to distribute the whole of it to its share-holders by way of dividends, it would e absurd to suggest that the income-tax payable on such .profits would

not be allowable as a debt .owed by the assessee in the computation ff of its net-wealth simply jlecause such profits are lio longer available _ fOI! bein~ r-efiect~ in its, J?oo~ wle awegatitig its total ssets. lPi . fl

, j,."

SUPREME COURT REPORTS

(1984] 3 S.C.R.

the bsence of an appropriate provision in the exclusionery part of sec. 2 (m) therefqre, it is difficult to accept the counsel's contention that a restricted meaning as suggested should be given to the expression 'all debts' occurring in sec. 2 (m). •

Turning to the other provisions, namely, sec. 2 (m) (i) and (ii), sec. 4 (3) and secs. 5 and 6 of the Act, we are in agreement with the High Court's view that these prnvisions deal with typical si!uations or special categories of assets. 'Section 4, for instance, deals with certain assets which are deemed assets of an individual for computing his net-wealth"assets held by his or her spouse or minor child, etc . . under a transfer made by him to them otherwise than for adequate consideration. and when such assets, though held by the transferee, are to be included as if belonging to t!Mt individual it is but natural 'and fair that debts owed by the transferee on the valuation date in

relation to such assets should be deducted while computing the value of such asset in the hands of the individual and this is precisely what sec. 4 (3) provides ; it is clearly a typical case dealing with deemed assets. Section 5 has to be read with sec. 2 (m) (ii) and so read the provision is that debts in relation to exempted assets. i.e.

asets which are not chargeable to wealth-tax at all 'should 1).0t be

llowed to be deducted ; similarly sec. 6 has to be read with sec. 2

(m) (j) and so read the. effect is that both the. assets and debts located outside India of a non-citizen or of an assessee who is non-resident or is a resident but' not ordinarily a resident in India.during the yee.t ending on the valuation date shall not be taken into account in

omputing the net-wealth of the assessee. From. these particular or special provisions it will.be illogical to deduce any general principle that only such debts as are incurred in relation to the assets declared or reflected in the books qualify for deduction in computing the net' V:.ealth of an assessee, especially as in the definition of 'net-wealth'

given in sec. 2. (m) there is no warrant for it.

As regards theelaboration of the contention based on a presumption sought to be raised by counsel for the revenue against the asses see-companies from the analogy. of the presumption arising in income-tax cases under se.c. 68 of the Income-tax Act, 1961, the c<>11tention is fallacious for two reasons. It is true that by reason- ' of the settlement made under the Taxation on Income (Investigation Commission) Act, 1947 the assessee companies must be .taken to . have admitted that they had made secret profits which were kept out

of the books of accounts and it is also true that no explanation was (<1rthcoming from the assessee companies as to hat became of snch

;- '

i.· ..

. .

--,

. •t

c.w.r .. v J.K: COTTON (Tulzapurkar, J .) 41 •

secret profits but the question is whether from £uch absence o( explanation any presumption can. be raised that such secret profits were still retained by them on the valuation date'in the circumstances of the case? In the first place the analogy of the rule applicable in income-tax cases would be inapplicable in wealth-tax cases inasmuch as In the fonner case the unexplained cash credit item is regarded as income of1he assessee from undisclo~.ed source having accrued to:· Wm during the accounting year while in the latter case only the valuation date is relevant on which date the assets (secret profits) must be held by the assessee and it will not do that such .asset . was held byhimsometlmeduringthe.concerned year. Secondly, after

 a lapse of sufficiently long period no presumption can be raised that · a secret profit earned some time during the concerned year has continued to be held by the astessee on the valuation date. In tlie instant case the secret profits admittedly earned by the assessee companies related to assessment years prior to September, 1948 (as procee dings under Taxation on Income (Investigation Commission) Act1947

could be taken only in respect of assessment years prio~ to 1.9. 1948) D and the tax liability in respect thereof was determined.in 1952 but. we o;: are concerned.with the valuation dates 30.6. 1956 and 31.12.1956 and, therefore, the presumption. as suggested by the counsel cannot be drawn against the assessee companies after a lapse of 8 long years. In .Annamma Paul Perincherry v. Commissioner of Wealth-Tax, Kera/a(') and Commissioner of Wealth-Tax. Kanpur v. J.K. Jute Mills Co.

Ltd(')., the Kerala High Court as well as the Allahabad High Court have taken a similar view that no such presumption can be raised after a lapse of sufficiently long period and we approve of the said view. In any case, as stated above, the deductibility :or the two tax liabilities in question 'does not depend upon whether the assets, in respect whereof such liability has been determined, are available or not while aggregating the assets of the assessee companies. The contention of the counsel for revenue, therefore, must fail.

Coming to the second 'contention the question i~ whether the deductions claimed fall within the exclusionery part of sec. 2(m) (iii) of Jhe Act, that is whether the two. sums of tax liabilities were outstanding for more than 12 months on the respective valuation dates ?

According to counsel the expression "outstanding" means. remailling unpaid after becoming due and since the Iiabil)ty to pay income-tax for any assessment year crystallses on the last day of the previous

(I) 88 I.T.R. 204

\2) 120 l.T.R, !SQ

. .

F . •

4$ •

SUPREMBCOURT REPORTS

(1984] 3 S.C.R.

year and becomes payable for that assessment year even before it gets quantied, the two tax liabilities in question which pertained to • assessment years prior to 1948; must be regarded as having become due by the last day of the concerned previous years arid since these were not cleared soon thereafter these were outstanding since at least 1948 and .thus became disallowable. In the alternative counsel urged that if payability is made to depend upon the date of a, n order passed quantifying the same then at least in 19)2 these became payable when the order of the Investigation Commission was passed and more than 12 months had pased since then. Counsel urged that granting of instalments under the settlement merely amounted to showing some concessions to the. assessee-companies.and did not affect the payability in 1952 of t.he arrears of tax. Jn our view, there is no force in any of these submissions made by counsel. The aspect that the liability to pay income:tax for any assessment year crysta!ises on theJast day of the previous year and,· therefore, be comes payable on the expiry of the last day irrespective of quantifica tlon of the dues would be irrelevant having regard to the express language of sec. 2 (m) (iii). Sub-cl. (iii) requires that the tax liability must be one which is "payab!e in consequence of any order passed" under any law relating to taxation on income or profits, etc .. such liability so payable under an order passed must remain "outstanding for a period of more than I) months on th-e valuation date." The alternative submission that the tax liabilities in the instant case must

b~ taken to have become payable in 1952 under the Investigation Commission's order and must be regarded as having remained out standing since 1952 is. equally of no avail for the payability of the dues must depend upon the terms of the Commission's order and admittedly a scheme for payment of t)le dues by instalments was provided in the order imd each instalment wouldbecome payable on the date on which it is directed to be paid. in our view, the expres sion 'outstanding' in sec. 2 (m) (iii) (a) and (bl will have to be construed in the background of the phrase "amount of tax ...... payable in consequence of an order" and in that context it must mean remaining unpaid after the obligation to pay is inourred. We are informed that similar construction has been placed on the expression 'outstanding' occurring in sec. 2 (ml (iii) of the Act by. the Calcultta High Court in Commissioner of Wealth-tax, West Bengal Ill v. Banarshi Prasad Kedia(') and by the Allah'abad High Court in Commissioner. of Wealth-Tax, U.P., nd Others

v. Padampat . Singhania(') and we ailiirm the same. Jn the instant qise it was an

(1) 771. T. R. 159.

(2) 84 I. T. R. 799,

. ' c.w.T. v J.K. COTl'ON (S. Mukharji; !J 49

admitted position before the Tribunal that under the scheme of instalments sanctioned in the settlements the two sums, in respect whereof deductions were claimed, had not become due 'for payment before the valuation dates. It is therefore, clear that the deductions claimed do not falJ within the exclusionary part contained in sec. 2 (m)

(ill) of the Act ·

In the result the High Court's view is confirmed and the appeals.are dismissed. There will be no order as to costs. ·

SABYASACHt MUKHARJI, J. On the second aspect, namely whe ther the deductions of two sums of Rs. 5, 49, 041 and Rs .. 21,61, 788 being the outstanding liabilities as a result of the determination under settlement arrived at in 1952 under the Taxation on Income (Investigation Comission) Act, 1947 , I respectfully .agree with the views expressed by my learned brother. I adhere to the opinion I expressed on the experession 'outstanding' in Commissioner of Wealth-Tax, W.es~ Bengal III v. Banarashi Prasad Kedia(') which is in consonance with the views experessed by the Allahabad High Court in Commissioner of Wealth-Tax, U. P. and Others V. Padampal Singhania('). I am, therefore, of the opinion that these deductions do not fall within the exclusiontry part contained in Section 2 (m) (iii) of the Wealth Tax Act, 1957.

On the first contention urged on behalf of the revenue I would, however, if I may, express my views. I respectfully agree with my learned brother thatfrom the relevant provisions of the W, ealth Tax Act to which my learned brother has referred, in the facts ::ind circumstances ava, iiable in this case, the deductibility of the two tax liabilities. in question does not depend upon whether the . assets in respect whereof such liability has been determined are available or not :while aggregating the assets of the assessee companies. In the facts of this case, it appears that in the case of M/s J. K. Cotton Manufac •. turers Ltd., proceedings were taken under the Taxation on income (Investigation Commission) Act, 1947 and a settlement was arrived. in 1952 and a sum of Rs.15,99, 041 was determined as payable by theassessee on its secreted profits and a scheme of payments of such liability by instalments was agreed upon. Similarly in the case of M/s J. K. Jute Mills Co. I!td., a settlement was arrived at in 1952 under the aforesaid Act and a sum of Rs. 42,93,392 was determined as payable by it on its secreted profits and a scheme of liquidation of such, liability was agreed upon. It is true that as a result of the admission made by the assessee, the assessee made profits, which

(I) 77 I.T.R. 159'

(2) 84 1.T.R. 799,

SUPREME COURT REPORTS [1984] 3 s.c.R.

year and when we have no material though the income tax liabilities for the same had been settled in 1952. There is no evidence to show whether thesf} profits had remained with the assessee either in the form of assets in he Balat)ce Sheet or othewise. The relevant valuation dates were much later, 30. 9. 1956 and 31. 12. 1956 respectively in the case of the two companies. Had there 15een any finding that these profits, in some form either as asssets in. the Balance Sheet

or otherwise, were with the assessee, it could have perhaps J, een examined whether so long as the a:ssessee does not bring those profits in.the computation of .the wealth, the assessee would be disen titled to the deductions of liabilities in respect of the same. These should have been examined by the Wealth-tax Officer with .the aid of the principles of Section 106 and Section 114 of the Evidence Act. But these were not done. It is unfortunate. Had that been done, it could have, perhaps, been examined whether by the principle of purposive interpretation in otder to gjve effect to the intention of legislature in enacting the Wealth Tax Act and evolving the scheme of settlement under Taxation on Income (Investigation commission) Act, 1947 whether the assessee was entitled to the deduction of these two tax liabilities. On the materials on record, I respectfully agree with the conclusion arrived at by my learned brother on the first contention urged on behalf of the revenue ..

N.V.K.

Appeals disrnissd.

37

COMMISSIONER OF WEALTH TAX? KANPUR

S. J.K. COTTON MANUFACTURERS LTD

V. D. TULZAPURKAR

Sections 2(m), 4(3), 5 and 6

S. 2

Wealth Tax Act, 1957

sections 2

Section 2

section 2

section 2

section 2

Sabyasachi Mukharji

section 106

section 114

CIVIL APPELLATE JuRISDICTION

T. A. _ Ramachandran

Janki Ramachandran

A, Subhashini

Sarla Chandra

S.T. Desai

B. P. Maheshwari

B.P. Singh.for

TuLZAPURKAR

J.K. Jute Ltd.

K. Cotton Manufacturrs Ltd.

Mis

Wealth-tax Act

Tlzapurkar

Tdbunal

India

s. 4

s. 2

sections 2

Tax Act, 1961

A.A.C.

sec. 2

sec. 3

Section 3

Schedule I

section 6

Estate Duty Act, 1953

Expenditure Tax Act, 1957

Gift-tax Act, 1958

Section 4

section 5

Section 6

zapurkar

sec. 2

sec. 2

sec. 2

sec. 2

sec. 2

sec. 2

sec. 3

sec. 4

sec. 2

sec. 2

sec. 2

sec. 4

Section 4

sec. 4

Section 5

sec. 2

sec. 6

sec. 2

sec. 2

Income-tax Act, 1961

Tulzapurkar

Kerala High Court

Allahabad High Court

sec. 2(m)

sec. 2

sec. 2

sec. 2

Calcultta High Court

Allah'abad High Court

Padampat . Singhania

sec. 2

SABYASACHt MUKHARJI

Section 2

Wealth Tax Act, 1957

J. K. Cotton Manufac •. turers Ltd.

J. K. Jute Mills Co. I!td

30. 9. 1956

31. 12. 1956

Section 106

Section 114

N.V.K.