IHI

v. n. o.g..i l; iMiqdl w ......

C.. L". w.-..w.J.

J-., Jl.

902 SUPRll:ME COURT REPORTS [1002] SUPP.

'!'.here oa.n therefore be no escape from the concJu.

BJOn tha.t the Act plainly intends that where the Representative Union appears in any proceeding under the Act even though that proceeding might have commenced by an employee under s. 42 (4) of the Act, the Representative Union alone can represent the employee and the employee oa.nnot '.l.ppear or act in such proceeding.

. .

In this view o.f te mattn the appeal must tail and Is hereby d1sm1ssed.

In the circumstances we pa.as no order as to costs.

Appe.al dismiB&ed.

THE COMMISSIONER OF INCOME-TAX

BOMBAY

v. l\IANILAL DHANJI, BOMBAY (S.K. DAs, M. liIDAYATULLAH and J.C. SHAH, JJ.)

Income Tax-Trmt crealed in favour of minor child-No benefit =ruing to ™nor in acwunting yoar-Whelher incomt from tnul la:etJbl< a.< i~ of a.<llUM~-Triut by aut.18tea fatMr- Aaae&U directed to iue it1COme for benefit of him8df, Ma wife and cAi/dron-Whtther income tazabl< a.< i•come of aaauaee-lndian lnconitW Act 1922 (XI of 1922) as. 16(3) 41(1)-Indian

T"'81JJ Act, 1882 (11of1882) •· 8.

In 1953 the assessee created a trust in 1espect of a sum of money and provided that the interest on that amount was to be accumulated and added to the corpus and that his minor daughter C was to rettive the income from the corpu1 increased by the addition of interest when she attained the age of 18 years.

In the relevant account year, when C was 1tlll a minor the income derived from the trust fund was Rs. 410 Earll.,; in 1941, the as1e1ace's father had created a tru1t in respect of =tain shares and money directing the trustees to pay the net intercat "':'d income ther"."f to the assessee "for the maintenance of hunself and h11 wife and for the malnten• ance education and bcneflt of all his children till his death".

In the relevant account year a sum of Rs. 14, 170 accrued as income in the hands of the asscssee from the said trust funds,

2 S.C.R.

SUPREMl.<"1 COURT REPORTS ll03

The taxing authorities included both these incomes in the total income of the assessee.

Held, that neither of these two incomes could be included in the total income of the assessee.

Under s. 16(3)(b) of the Indian Income-tax Act, upon which the authorities relied, the assessec could only be taxed on the income from the trust funds for the benefit of his minor child if in the year of account the minor child either received the income or it accrued to her or she had a beneficial interest in the income in the relevant year of account. In the present case though there was income in the hands of the trustees and they were liable to pay tax thereon, there was no benefit to the minor child in that year.

As such the sum of Rs. 410 did not form part of the total income of the assessee.

The trust deed of 1941 created two trusts, the one requiring the trustees to pay the income from the trust funds to the assessee and the second requiring the assessec to spend the income for the maintenance of himself and his wife and for the maintenance, education and benefit of his children. It was not a case where the settler merely expressed awish or desire or hope but he gave as direction which created a trust in respect of the income in the hands of the assessec in favour of himself, his wife and children. The assessee did not create the second trust in respect of the beneficial interest which he held under the trust of I 941 and s. 8 of the Indian Trusts Act which forbade the creating of such a trust was inapplicable.

The assessee was a trustee and not the sole beneficiary; and since the shares of the beneficiaries were Indeterminate it was open to the Department to levy and recover tax at the maximum rate from the assessee as trustee under the first proviso to s.41(1} but the Department was not entitled to include the sum of Rs. 14,170 in the total income of the assesse as though he was the sole beneficiary under the trust deed.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 323of196. Appeal from the judgment a.lld order dated September 25, 1958, of the Bombay High Court in I.T.R. No. 3 of 1958.

K. N. Rajagopal Sastri and D. Gupta, for the appellant.

I R. J. Kolah, J. B. Dadachanji, O. 0. Mathur and Ravinder Narain, for the respondent.

1962. January 31. Th~ Judgment of the Court was delivered by

Tiu Ccmmissi•.,, •/ 111&oine-tax, BmN.1

Ji 1nil.J Dlionji.

ll1m•41

lfH

111C..-i.JJiMCM t/

,__.,_tu, He111toy

M..tl1I DMr.ji, -....

D11 J.

904 SUPREfE COURT REPORTS (1962] SUPP

S.K. DAS, J.-The CommiBSioner of Income-tax, Bombay City I, has preferred this appeal to this Court on a certificate of fitness granted by the High Court of .Bombay under s. 66A (2) of the Indian Income-tax Act, H!22.

The a.ssessee, who is the respondent before us, waa assessed to income-tax as an inrlividual in respect of his incomo for the assessment yea.r 1954-55.

The taxing authorities included in the assesaee's total income for the year to sums, namely, a sum of Ra. 410/- and a sum of Hs. 14,170/-. It was stated tha.t these two sums accrued in the relevant account year in the following <>ircumstanees. Un January

12, 1953 the asse88ee created a. trust in respect of a sum of Hs, 25,000/-, the truste1s whereof were the Central Bank Executor & Trustee Co., the &BBeSBoo himself his wife and brother. The scheme of the trust-deed was tha.t the said sum of Rs. 25,000/- was set apart by the asscssee and it was provided tha.t the interest on that amount should be accumulated and adder! to the corpus and a minor daughter of the

a88essee, named Chandrika, was to receive the income from the corpus increased by the addition of interest, when she attained the age of 18 on February I, 1959.

She was to receive the income during her life time and after her death the corpus was to go to persons with whom we are not concerned. Tho income derived from the said trust fund amounted to Rs. 410/- in the relev!l.nt account yea.r and the taxing authorities included this amount in the total inrome of the aRSessee, purporting to a.ct under s. 16(a)(b) and/or s. 16(3)la)(iv) of the Income-tax Act. As regards the second sum of&. 14,170/- it appears that on Deoember l, 1941, the &88e6lletl's father had created a trust in respect of some shares and a caah sum of Rs. 3t.1,0UO/- for the benefit of hie four eoi;.s including the a.s&'88ee.

The trustees were the Central Bank Executor and Trustee Co. Ltd., the asseSi!ee himself and one other person. The said truateea were to hold the trust fonda upon trust to

pay the net interest and income thereof to the assessee "for the maintenance of himself and his wife and for the maintenance, education and benefit of all his children till his death". The sum of Rs. 14,170/-. it was stated, accrued as income in the hands of the assessee in the relevant account year from the said trust funde.

The view of the taxing authorities and the [ncome-tax Appellate Tribunal was that under tho aforesaid provision of the trust deed the assessee was thesole beneficiary and that the a.mount was received by him for his own benefit and ho was not accountable to any one in respect of the amount and, therefore, this amount was liable to be included in his total income.

On behalf of the assessee the contention was that the sum of Rs. 410/- aforesaid was not liable to be included in the total income of the assessee inasmuch as Chandrika, the minor daughter of the assessee, had no right to the income nor any beneficial interest therein in the relevant year of account under the provisions of the trus~ deed and, therefore, neither s. 16(2)(a)(iv) nor s. 16(3J(b) applied to the case. As to the sum of Rs. 14,170/- the case of the assessee was that it should not be included in his total income as the sole beneficiary, because the beneficiaries under the trust settlement were not only the assessee but his wife and children as well. It was contended that the assessee received the amount in trust for himself and his wife and children and it was open to the Department to proceed under the first proviso to s. 41 (1) of the lncome-tax Act and recover tax on a separate assessment made on the assessee a.s a. trustee in respect of the said sum at the maximum rate, because the individual shares of the beneficiaries on whose behalf the money was reeivable were indeterminate and not known.

The Income-tax Appellate Tribunal, on an appeal by the assessee, did not accept these contentions. The Tribunal was then moved to state a

IS6t"

The Oommissiolur •f

Inconte .. tax, Bombay

' Manilal Dl"mji,

bombo.1

Das J.

1161 n.c_, n-.1

l11ec>.-....X• Be"'69

•• JI ""li:.f:;"i4

case to the High Court on two questions of law those questions were :

"l. Whether the sum of Rs. 410/· is propt•rly includible in the asseSBee's +·:al income either in accordance with the provisi?ns of section IH(3hbJ and/or section lti(3)(a)

(1v) of tho Indian Income-tax Act, 1!!22?

2. Whether the sum of Rs. 14, 170/· is properly includible in the total income of the a.BBessee as the sole beneficiary thereof under the trust settlement made on 1-12-1941 by Dhanji Devsi ?"

On being tiatisfied that these questions of law aroee out of the order of the Tribunal dated April 24, 1957, the Tribunal stated a case under s. 66(1) of the Income-ta.x Act.

The High Court answered both the questions in favour of the asses1ee by its judgment and order dated September 25, 1958.There after the High Court granted a certificate of fitness under s.66A(2) of the Income-tax Act and, as we have already stated, the persent appeal has been brought to this Court on the strength of that certificate.

We proceed now to deal with the first ques tion which relates to the sum of Rs. 410/·. The question is whether this sum was properly includible in t-he asHeSBee's total income under the provisions of s. l6(3)(b) of the Income-tax Act, bll<'auee Mr.

Rajagopal Saatri appearing for thC1 appellant hae not pressed the claim which WM made before the Tribunal on behalf of the Department under the provisions of s. l6(:l)(a)(iv). Before we go to the provisions of s.

Jf~:l)(b) it is advisable to set ont the material portions of els. 3 and 4 of the trust deed of January 12, 1953.

Those clauses were in these terms :

"3. Th" Trustees shall hold and stand pusscsi; etl of the trust fund and the invest- 1J1ents for the tilni; being representing the

same and receive the income, divided, interest and rents thereof and invest the same and the resnlting income, dividend, interest and rents ther-:iof so as to accumulate at compound interest to the intent that suc>h accumulations shall be added to the principal trust fund until the settler's daughter Chandrika shall attain the age of eighteen years which age she will attain on the lst February 1959 and after the expiration of the above named period the Trustees shall deal with and dispose of the trust fund as hereinafter stated.

4, The Trustees shall hold and stand possessed of the trust fund and the accumulations thereof upon trust to pay the net interest and income thereof after deducting ail outgoings and charges for collection to the said Chandrika for her life for her maintenance ... " It is clear from these clauses that during the minority of Chandrika, the income from the trust funds was to be accumulated and added to the trust funds

md after the attained majority on February l, 1959, she was to get only the income from the

enlrged trust funds.

Now, in the relevant year of account Chandrika was still a minor and under the terms of the trust deed she had no right to the trust income nor any beneficial interest therein ; she could neither receive nor enjoy the income. She did not derive any .benefit whatsoever from the trust funds during her minority and even after she attained majority, she did not have any right to the trust income which arose during her minority and her only right was to enjoy the income arising from the enlarged ti; ust funds, i. e., the original trust funds and the accumulations of trust income during her minority. Therefore, the sum of Rs. 410/- was not the income of Chandrika, but was the income of the trustees and the income }Vas impressed with a trust, namely, that it should be added to

IHB n, CommissiDw of

Income-ta.., Bom6'!1

Manilal Dhonji, ,,,.,....,,

Das J.

TA. CnnmisJiottn o.f IMom,.tax. B00tb•)'

v, M Milo/ DMflji,

Bombay

D., J.

the trust cm pus. The qurbt ion is, does s. 16(3)(b) apply to uch a ell.Se ?

We shall presently read s. 16(3), but before we do so it is necessary to refer to the soheme or s. 16 of the Income-tax Act.

The section deals with the computation of total income as defined in s. 2(15) of the Act, and provides that what sums are to be included or excluded in determining the total income.

The definition of cotal income in~. :?(15) involves two elem('nts-(a) the income must comprise tho total amount of income, profits and gains refe1red to in s. 4( 1), and (b) it must be computed in the manmr laid down in the Act. The exemption granted under the Act is of two kinds ; certain classes of income are exempted from tax and n !so excluded from the computation of total income, while certain other classes of income exempted from tax are to be included in the a86essee's total income. Now cl. (a) of sub-8. (i) of s. Iii provides the sums exempted from tax under certain provisions of the Act should be included in the assessee'1

total income. Clause (b) lays down the mode of computing a partner's share in the profit or loss of the firm.

Under cl. (c) income which arist~ to any person by virtue of any settlement or disposition from assets remaining the property of the settler or disponer etc. is taxed as his income.

The object of the legislation is clearly designed to overtake and circumvent a tendency on the part of the tax-payers to endeavour to avoid or reduce tax

liability by means of settlements. Sub-Mection (2) deals with grossing up of dividend etc. Then we come to sub-a. (:I).

This subsection aims at foiling an individual's attempt to avoid or reduce the incidence of tax hy transferring his <1.Ssets to his

wife or minor child or admit ting his wife as a

partner or admitting his minor child to the benefits of a partn\'rship in a firm in which such individual is a partner. The bU b-scctiu11 crrntes an artificial

2 S.C.R.

SUPREME COURT REPORT.3 909

liability to tax and must be strictly construed.

Now, let us read the sub-seotion.

"16. (3) In compnting the total income of any individual for the purpose of assessment there shall be included:

(a) so much of the income of a wife or minor child of such individual as arises directly or indirectly :

(i) from the membership of th!l wife in a firm of which her husband is a partner;

(ii) from the admission of the minor to the benefits of partnership in a firm of which such individual is a partner;

(iii) from assets transferred directly or indirectly to the wife by the husband otherwie than for adequate consideration or in connection with an agreement to live apart; or

(iv) from assets transferred directly or indirectly to the minor child, not being a married daughter, by such individual otherwise than for adequate consideration ; and

(b) so much of the income of any person or association of persons as arises from assets transferred otherwise than for adequate codsideration to the person or association by such individual for the benefit of his wife or a minor child or both." The argume11t on behalf of the appellant is that the conditions laid down in cl. (b) of sub-s. (3) of s. 16 are fulfilled in the present case and therefore the Department was intitled to include in the

Till Oommissiow of lncome .. tax, Bom69

M .. ilol Dlumjl,

, Bolft6q)

1. , ---·

D., .I,

. I96a T"' c....;,,;.,.,, of l""'111ff-ta1 Bombq,

•• M ,.;/M D"4nji,

Bom/19

DuJ.

tots.I income of the asseiieee so much of the income in the hands of the trusteee as aroee from the aaaete transferred bv the aasesaee for the benefit ofhia minor .child. It is pointed out that the conditions laid down m cl.(b)are-(l)thatthere must be income in thehanda

of any person or Msooiation of persona (trusteea in the prelK'nt caaes;) (2) the inoome must ariae from al!8ets transferted otherwise than for adequate consideration to the trustees; and (3) the transfer mnat

be for the benefit of the minor child. It is argued that when the oonditions are fulfilled and the only exceptional oaee, namely, where the transfer is for adequat" oonafderation is out of the way, cl. (b) mW!t apply and the Department ia entitled to include thll inoome in the handll of the trustees in computing th& total irioome of the individual &880811ee who made the transfer.

At f'rst eight the arirument appeara to be attrac tive and supported by the words used in the olaW!e.

On a closer scrntinv, however; it seems to us that

cl. (b) must be read

0in the context of the scheme of 16 and the two clauses (a) and (b) of sub-a. (3) thereof must be read togf'ther. So read the only rea.sonahle interpretation appears to be the one which the High Court accepted, namely, that the scheme of the section requires that an &1111e880e oan only be taxed on the income from a truet fund for the benefit of his minor child, provided that in the year of account the minor child derives 1ome

benefit under the trust deed either he receives the income, or the income accrues to him, or he hu a beneficial interest in the income in the relevant

year of account. But if no income accrues, or no benefit derived and there is no income at all (eo far as the minor child is concerned), then it is not oonaistent with the scheme of e. 16 that the income or benefit which is non-existent eo far as the minor child ia concerned, will be included in the income of hi1 father. Take, for example, a oaae •here the ueeta

.. .....

.... ·<

2 S.C.R. SUPREME OOURT REPORTS !111

were trAnsferred ot; berwise than for adequate consideration for the 'benefit of a minor child, but the child has attained majority befor the relevant year of account. After the child attains majority the subsectfon would cease to apply and the income from assets transferred for the benefit of the child would no longer be taxable in the parent's hands. The reason must be that in the relevant year of account there is no benefit to the minor child by the transfer, even though the transfer was originally made for the benefit of th£' child. The same .principle may be illustrated by another example which bas been dealt with by the High Court. Take a case where there are intermediate beneficiaries before the minor gets the benefit under the trust deed. In such a case the learned Advocate for the Department conceded in the High Court that ol. (b) .of sub-a. (3) of s. 16 would not be attracted till the minor derived benefit under the trust ded. Mr. Rajagopal Sastri did not make any such concession before us; but seems to us that principle underlying the illustration is incontestable. If the minor derives no benefit in the relevant year of account, it can hardly be said that for that year the transfer was for the benefit of the minor child. Section 4, the charging section, of the Inoome-tax Act makeR it clear that what is taxed is the total income of the relevant account year, and total income, according to .s. 2 (15), is the income, profits and gains referred to in sub-a. (1) of s. 4 and computed in the manner laid down in tlie Act. In other words, the tax is levied on a yearly basis.· It is true that in the present case there was income in the hands of the trustees and the trustees were liable to pay tax thereon. That, however, is not the question before us.

The question before us is whether such income in the hands of the trustees could be included in the total income of the assessee under

cl. (b) of sub-a. (:l) of s. 16. In our opinion, when

Tiu Commission1r of

Incomt .. t"2X, Bombay

M anilal Dhqnji,

Bomba..~

Das J.

lllOt

Tiii c....,;,,;- •f

/11&om~W BomboJ

M .,.ilol D1'anji,

llomb•y

DasJ,

cl. (b) of sub-s. (3) of s. 16 talks of benefit of the minor child it refers to benefit which ari.eea or aoc rue11 to the minor in the year of account. If there be no such benefit, the income cannot be included in the total income of the individual who made the transfer. There is a third type of case which also illustrate the 8&Ille principle. If only a portion of the income of the trust is reserved for the minor child, cl, ( b) would apply and that portion of the income which is set apart for the benefit for the child would be taxable in the handa of the settler. All these illustrations only establiah the principle that the minor child mullt derive some benefit in the relevant year of account before cl. (b) would apply.

Furthermore, we are also of the view that els. (a) and (b) of the sub-section must be read together. Clause (a) begins with the expreeaion

"so much o: tho income of a wife or minor child of such individual as ariees directly or indirectly", and this is followed by tho four circumstanoee numbered (i), (ii), (iii) and (iv). There is no doubt that so far as cl. (a) is concerned, there must be income of the wife or miuor child. Mr. Rajagopal Sa.stri has not disputed this. The obvious intention of the Legislature in enacting cl. (b) wa.a to see that the provisions of cl. (a) were not defeated by the a.sst>.88ee creating a trust and in order to deal with that mischief it enacted cl. (b). Instead of the expre88ion "so much of the income of a wife or minor child" the expression used in cl. (b) is "so much of the income of any person or 8.880Cir.- tion of persons etc.". Obviously, when a trust is

created the income is income in the hands of the trustees. But the undHlying principle in the two els. (a) and (b} appears to be the same, namely, there must be income of the wife or minor child under cl.(a) and there must be some benefit derivfld by the wife or minor child in the year of account under ol.(b). Thia is consistent with the scheme of a.16

1968 and particularly subs. (3) thereof. which is intended to foil <in individual's attempt to avoid or reduce the incidence of t1.x by transferring his

assets to his wife or minor child etc. When, however, the minor child derives no benefit under the trust deed in the year of account, it is not consis

tent with the scheme of s. 16 to say that even

thouh there is no accrual of any income or benefit in the year of account in favour of the minor

child, yet the income must be included in the total income of the individual concerned.

1 ht Commisaiontr. of

lnc.Jme-tav, Bomboy

Our attention has been drawn to s. 64 of the Income.tax Act, 1961 (43 of 1961).

That section corresponds to s. 16 of the Income.tax Act, 1922 and cl. ( v) of s. 64 has made the position clear by using the expression ' immediate or deferred benefit" so that even a benefit which is postponed and does not arise in the year of account will not entitle the Department to include the income in the hands of the trustees in the total income of the settler. We do not, however. think that the Act of l 961 can be taken as declaratory of the law which existed previously ; nor can s. 64 (v) be taken as determinative of the true scope and effect of cl. (b) of sub-s. (3) of s. 16.

The Legislature may have thought fit in its wisdom to widen the scope of the law that existed previous to it so as to take in deferred benefits as well. We think that we must interpret cl. (b) of sub-a. (3) of the context of the section as it occurs in the Income-tax Act of 192:?.

We have been referred to two EogliRh decisions Dale v. Mitcalfe (1) and }lfauray v. Gommissianer8 of Inland Revenue ('). One of the deciion Dale v.

Mitcalfe ( 1 J related to s. 25 of the English Income Tax Act, 1918 (8 & 9 Geo. V. C. 40) aud the other related to 1;1. 20 ( l)(c) of the English Finance Act 1922 ( 12 and 13 Geo V. C. 17). Those provisions were differently worded and appear in a different

{I) (1927) IS T. C. 41. (2)

(19~4) 26 T. C. 91.

M anilal Dl.anji,

Bombay

Das J.

~··

1962 r.1 Co..,,;,,;.,, of ,_, Bombo_,

. v.

M..a.I DA.,.ji, ~

DuJ.

914 SUPREME OOURT REPORTS [1962) SUPP.

context and decisions of the En~Iish Courts given on provisions differently worded and appearinl!' in a different context are not, in our opinion, help fol in determining the true scope and effect of

cl. (b) suli-s.

(3) of s. 16 of the Income-tax , Aot, 1922.

We have therefore, come to the conclusion that on a. true constnwtion of cl. (b) of sub-s. (3) of s. I 6, the view expressed by the High Court was correct anrl the sum of Rs. 410/- did not f(Jrm part of the total income of the &BSessee. The High Court correctly answered the first question referred to it.

We now turn to the second question. The rPlevant clause of the trust deed of December I, 1941 is ol. 7 which reads as follows :

"The trustees shall bold and stand poS8688ed of the Trust Fund mentioned in the second Schedule hereto and the accmnulations thereof referred to in clause 3 thereof upon T111st to pay the net interest and income thereof to the Settlt!r's son

MANILAL for the maintenance of himself, his wife and for the mainten&nce, education and benefit of all his children till his death."

The queRtion before us is whetbllr under this clause the income received by the assessee is impressed with a trust in favour of himself, his wife and children to whom he is accountable as a trustee for the amount received. In other words, the question is whether tha trust deed of December I, 1941, created two tmsts, the one requiring the trastees to pay the income from the trust funds to the assessee and the second requiring the assessee to spend the income for the maintenance of himself and his wife anrl for the maintenance, education and benefit of his children. In cases where pro

perty i.s given to a parent or other person standing or regarded aa in /, ow parentia, with a direction

2 s.c.H ..

SUPREME OOURT REPORTS 915

touching the maintena.nce of .the children, the question often a.rises whether the settler intended to impose a. rust by the dirccMon or . whether the directiein was only the motive of the gift. The line between the two cmsses of casea has not been drawn "lways very ar1X1ly; , It is,. however, . clear that in construing provisione Of this kind the Con rt will not enforce .or treat as obligatory a. mere wish or desire or hope on the pa.rt of the settler tha.t the d.onee of the fund should or would ought to or is expected to apply it for the benefit of other persons ; on the other hand, the Court does regard as binding and obligatory and does enforce a direc tion or trust in favour of third parties if such a

binding obligation can .be clearly ascertained from th-0 document. Instances of cases where no trust is create(l a.nil of ca.sea where. trust is created. are detailed a.t pa.gee. $$ n.d $!i) of J:, ewin on Trusts .(llitli F; dition). . .

We a.re un'able tohold tha.t. in the ca.se before a ol. 7 of the tl:i:ist dd merely ~Pssei:l a wiMi p1 desfr:~ or ope9i1 tit~ f>&tt of ib:e aettier;, We . a.r~ in :11ogreemt with, the: l{tgh C9tirt thi!.t the

drectfon QOntli.itied' in cl: '7 crea.ted a trust in

fi!.Y.i:r1~.; of th& a$1e'8ee,-his wif& apd. child, ren. . The . . etpre$1iiou ·•"for the . maintenanc(l of himself and . his wife and for the maintenaQce, . eoucation . and .

. • benefit of au his Chilcrrerl'' i11 .not .indicative of a

.tii:ete d¢sif~· .or bop~: it imfci&e$ a. bi:iiding and

obliga.tocy truJ!t; In r~; BOQ{k, .JJciitk v. Bootk f) a. te$ta.toi" gli. ve the rtlllidue of his . esta.te to bis 13x:eoutors, on tiruijt, to pay to hii! \life or permit. her

to recuive the a.nnua.l .in09me thereof'during her life, "fqr lier use .a.nd .benefit and for the m&intenance a.nd education of my children".

It was he.id that the wifti took the income subject to a trui!t for the maiµtenanoe a.nd eduoa.tion of the

. {'~1.-{1Rq4:) r: (::h. ~R1.

Tht_Commisfuncr o/

1,.,,,,,,...,.,, Boml>'IJ'

•• Mtinilo Dha'\ii,

11 ... b'IJ'

_ DasJ.

llHll n, CommiJsio1Wr of

l•ams-•a, Bombff1

•• JIMilal D.\oiV1

B-NJ

DasJ.

children.

A similar view Wl\8 exprel!8ed in Raike, s

v. Ward (1) and Woods v. Woods(')

On behalf of the appellant our attention was drawn to s. 8 of the Indian Trusts Act, lb82 (II of

1882) which states that the subject matter of a trust must be property transferable to the bene ficiary and it must not be merely beneficial inter est under a subsisting trust. It is contended that

the asseesee held a beneficial interest in the income from the trust funds under the trust deed of December l, 1941, and in respect of beneficial interest another trust could not be created in favour of himself, bis wife and children. We think that this argument prooeeds on a misconception.

The a.ssessee did not create a second trust in respect of the beneficial interest which he held under the trust, deed of December I, 1914. The &SBessee's father created two trusts by that trust deed, one requiring the trustees to pay the trust income to the assessae a.nrl the other requiring the 888C88ee, who wll.8 himself a tn1stee, to spend the income for the maintena.noe, education and benefit of his children. It is not disputed that by a single document more than one trust may be created.

It is not, therefore, true to say that the subject matter of the trust in the present case was merely a beneficial interest under a subsisting trust.

Under s. 41 of the Income-tax Act it was open to the Department either to tax the trustees of the trust deed or to tax those on whose behalf the trustees had received the a.mount. The true position of the 8.ll8Cl!IMJO in this case was that he was a trustee and not the eole beneficiary under the trust deed. He held the income on trust for himself, bis wife and bis children.

The aha.res of the beneficiaries were indeterminate and therefore under the first proviso to s. 41(1) of tho

(I) (1842) 66 ll. R. 1106-1 Hue 44S.

(2) (1836) 4-0 I!. R. 429·1 MY&: C. R .COi.

Income-tax Act, it was open to the Department to levy anil recover the tax at the maximum rate from the assessee ; but that did not entitle the Department to include the sum _of Rs. 14,170/- in the total income of the assessee as though he was the sole beneficiary under the trust deed, Mr.

Rajagopal ::lastri made it clear that the intention of the Department was to include the sum in the total income of the assessee in order to levy and charge super-tax on him. This, we do not think, the Department was entitled to do. In respect of the sum of .Ks. 14,170/- the assessee was a trustee, within the meaning of s. 41 of the Income-tax Act, appointed under a trust declared by a duly executed instrument in writing and as such trustee he had the right to contend that his assessment in respect of the money received by him not as a beneficiary but as a trustee could only be made under the first proviso to s. 41 (1). We have, therefore, come to the conclusion that on the second question also the answer given by the High Court was correct.

The result, therefore, is that the appeal fails and is dismissed with costs.

Appeal dismissed.

1111 CommissiDnlf' of

[tJCMnl .. ffx, Bomba,

M anilal Dhanji,

Bomb!!.]

DaJJ.

s. 42

THE COMMISSIONER OF INCOME-TAX

BOMBAY

IANILAL DHANJI, BOMBAY

C. SHAH, JJ.

JJ Act, 1882

s. 16(3)(b)

Income-tax Act

s. 8

Indian Trusts Act

Income-tax Act

s. 16(a)(b)

s. 16(3)

Income-tax Act

s. 16(2)(a)(iv)

s. 16(3J(b)

s. 41

Indian Income-tax Act

s. 66(1)

Income-tax Act

Income-tax Act

s. 16(3)(b)

s. 16(3)

s. 16

Income-tax Act

s. 2(15)

s. 4( 1)

s. 16

s. 16

Section 4

s. 2

s. 4

s. 16

s. 16

s. 16

s. 64

s. 16

s. 64

s. 64

s. 16

Income-tax Act

s. 25

English Income Tax Act, 1918

English Finance Act 1922

s. 16

clause 3

s. 8

Indian Trusts Act

s. 41

Income-tax Act

s. 41(1)

Income-tax Act

s. 41

Income-tax Act

s. 41


W62 -.. -

.JptH1'.J 3J.

918 SUPREME qbURT REP$.'.F~ f~9621 SUPJ . . jl.~p~I.S:A.N -~· : .. , .. ,. ~· v .;· ~1 . - •. .THE'STATE Q.F M~HA°R:AsiI'l'RA & 0T~E.RS

(~.P. SINHA;-O<J., .. K. SUlljlA ~A~; ~: Rl\JAG0P~4

... AY}'Af'l(MR; J,-R,~u.r;>:SQ.lKA~ and 'ii'. I,,.

 V.El'\.KATARA}b\ A'.IY AR,]].) .1 .. _ .. ' _~ ·~~-:~ ·~: ... .,,' ~- . '!: '"~-1 ~~· ·-·~ ~-'-'".. '• Pfeveiltive. Difeniion~Ord, r aluf'grounds >; n )!J.nglisli-

Dtenue not.knowing. Englisli:..:..pppbitunity ti ', tnake .. rep';-e8enta.- . tion; whther .denie<J-Oonti(!'tio1i. of IiJf!ia', Ar~. )2(~)-~ ·

The-<jeteime:, Yas servM . }Vith th~· odr of detention and the grounds .in English. He did 1lOt know English and asked for a translation of these .in Hindi.

This., rquesf was refused on the grounds that the order and the grounds h"ad

been ora1ly translatd t? him at th:.e time they \vere' seryed upon him and that English still being the official !ang-uage communication o'f. the order and groun<:Js in_ English was in accordance with the law.and the Constitt1tion.

Held, tht the provisio:ns of Art. 22(5) of the Constitution were not. cpmplied wjth a9cj the c\te11ti, o.nwas il)egal.

Article 22(5) rcqujred, Wat the gwµf\d~ .sl)ould, bC: ·.coi; rimunicted to the detenmf iis. soon as ma)'.J:ie'ahd that: hi! shou11fbe afforded the earlies< oppoi't!lnffy of ·.waJdng. ; a,\ r.presentation agairi.st the order.

Gomrriu'hic:atio'n. . .Ut: thiS cOhtcxt meant bringin'{hom~ tq ihe'i:IO'tenµ6"e@tt1vii'kllowleage ci~·, xhe: fl\cts l\Hd 'groµnds on'whicln!leohlcr:wai•baseti. 'foa.perso;1 who:. , was-ln<; it. conversan\'with 'tl\c,.;:Englljli.;.fan_gijagl', !n.:, or<Jr .to ', satisfy. the requirj:')ncnt:.of•the ; Gontituuon, the detenue. niust.

-l:ic gi'ven. th!' gr()unds in:a:'; J, anguage.wh!cli ho. can,. ur(dp{)i\and

and irl a script whfoh,'he caaj~.adiif..J:)e iS'"1<Jiieya, t2 .petfo11.

J\1ere ?ral transfa':ti~.n'at'ih~'time'iir sei":'tce was:llo~'Ontiugh: .

~ .}

- • ,.., •

" '' • . : II. 11 -· .. • - C.R1Mil!IAL APPE!XATE, JtmtsnrnTro}< ; .Dr. :A.

' • ~ :. : ¥ ' ' ,,, - ' ~' " .No. 189.of Hl61'.' .. ... ' , ·:.,. ., ,. ·, .. ' •, . ' •, . ' .. ·~· " . ' ..

Apeal by-· spea:l:l!l, ai~.Joiri,.the,' -ju_dgment ._aiid orr .datetl jf.uJ31.-JO:'itndll,19~),:Qf the

B.omby .High (fourt: rN<Lgpur iJ:leilc)l.);. ·.in 'Ci-i'mirial Appliqa.tion No. '1~ .. of 01.1)'\lL, • A. S. Bo1jM; , if::'A: .. "Masoitkar;~.iJf .. L. Vaidya, M. M .. Ki, nkheae Aiid. Qripat ; Rai,.forJµ, e ·\tppellitnt.

M. 0, Setalvid-( ·.Atf!?rwy, General: for India, B. flen 'and R.l!, Dlielxirj, f.Q, r the Pespod!mts. ., .

19!32. Ja:nuary 3-i .. 'The 'Judgment qf th!l 09urt was deli:iere<:I' B.t . '.- _, ·. ·

l' '

. SINlIA, C.J.-This appeal is. direot.ed against the Judgment a.nd order dated July 11, 1961 of a Division Bench of the Bom b!ly High Court (Nagpur Bench), dismissing the appellant's application, under Art. 226 of the Constitution, read with s. 491 of the Code of Criminal Procedure, wherein he had pray&d for a writ of Habeas Corpus against the State of Maharashtra and. the District Magistrate of Nagpur, directing them to produce the petitioner in Court and to set him at liberty.

This application was heard by us on January 8 and 9, 1962, and after hearing Shri A. S. Bobde for the appellant and the learned Attorney-General for the State of Maharashtra, we directed that the appellant be released forthwith, and that the reasons for our judgment will follow later. We now proceed to set out our reasons for the order passed on that day.

It. appears that an Order of Detention, under s. 3(1) (a)(ii) of the Preventive Detention Act (IV of 1950) (hereinafter referred to as the Act) was made by the District Megistrate (.)f Nagpur on April IO, 1961. The Order of. Detention is in these ttrms : ·

"No.CC/X-(2) of 196:1 Office of the .

District Magistrate, Nagpur, Dt. 10th April, 1961.

ORDER OF DETENTION UNDER SEC . . 3(1)(a)

(ii) OF THE PREVENTIVJJJ. DETENTION AOT, 1950. . . .• . .

Whereas I am satisfied that it is necessary to prev:ent Shri .. Harikisan . Kishorilal Agarwal of Nagpur from acting in: a manner prejudicial to the maintenance of public order and that therefore, it is necessary to detain him.

Now, therefore; in exercise of the powers conferred <in me by Section 3(l)(a}(ii) of the

IIJIJ2

Hllfikisan

Tfte814t<of M ahuosAtra

Sinha C.J.

11161 --- B.rliJa

~· 1/1 S1at10/ II d., aslar.J

Sinlto C.J.

Preventive Detention Act, 1950, I Dinkarrao

Hanjantrao Deshmukh, I.A.S .. District Magistrate, Nagpur hereby direct that ihe said Shri

Harikisa.n Kishorilal Agarwal be so detained.

Given this 1( th day of April 1961 under mJ signature and seal.

Seal of the Sd/D.H. Deshmukh D.M. Nagpur District Magistrate. Nagpur" He also directed that the appellant should be detained in the District Prison, Tbana, and that for the purpose of the Bombay Condition of Detention Order, 1951, be treated as a Class II Prison., r.

The grounds of detention were served on the same day. The substance of the grounds is that since his release from previous detention in October, 1960, he had been instigating persons at Nagpur to defy and disobey reasonable directions and lawful orders isaued by competent authorities, from time to time, prohibiting and regulating processions and assemblies at Nagpur ; that by use of highly provocative words, expreBBions and slogans in meetings and proceBSions in Nagpur, in which he took a prominent part, he had instigated persons

on several occasions at Nagpur to indulge in acts

of TI.olence and mischief and to create disturbance in the city of Nagpur; and that he had been acting since October 1960, in a manner prejudicial to the maintenance of public order, in that city. And then follow 'notable particular' of his activities, running into five closely typed pages and contained in many paragraphs. In his petition to the High Court, the petitioner raised a number of grounds of attack against the legality of the order of his detention, and most of those grounds have been reiterated in this Court. We do not think it neoeseary to go into all the points raised, on behalf of the appellant, by the learned counsel. In our opinion, it is enough to say that we are satiafied

that, in the circumstances of this case, the provi- Rions of Art. 22( 5) of the Constitution have not been fully complied with, and that, therefore, the appellant had not the full opportunity provided or contemplated by t.hat Article of making his representation against the Order of Detentidn.

In this connection, it is necessary to state the following facts. The appellant wrote a letter to the District Magistrate of Nagpur on April 19, 1961, to the effect that he had been served with an urder of Detention d1>ted April IO, 1961, and that the Order and the grounds of detention being in English, he was unable to understand them, and therefore, asked for a Hindi version of the same so that he may be able to follow and understand the charges levelled against him and take necessary steps for his release from jail. He raised some other questions also in that letter, but it is not necessary to refer to them here. To that letter the District Magistrate replied by his letter dated April 23, 19ol, the second paragraph of which, in the following terms, sets out his views of the matter:

"The order of detention and the grounds of detention already communicated to you are given in English which is the official language in this district. It is not possible to supply any translation of the same for is

(sio) it legally necessary under the Preventive Detention Act, 1950. The order and the grounds of detflntion served on you were fully explained to you by the .Police Officer

in the presence of the D.8.P. Nagpur City." The High Court, dealing with this contention on behalf of the detenue, ca.me to the conclusion that under the Constitution English still continued to be the officia.l la.nguage of the State of Maharashtra., and that service of the Order in English upon the detenue was sufficient compliance with

lHI

H.WU..

•• Tiw81ot.of MaltM.uhlr•

Sinlla C.J.

Harilrisci

v, n.s11z1 .. 1 Mttlior911ttr•

SW.• C.J.

922 SUPREME OOURT REPORTS [1962] SUPP.

theTequircmeute of cl. ( 5) of Art. 22 or' the Constitution. It also held that the failure oft.he District Magistrate to supply the grounds in Hindi did not have the effect of preventing him from making his representation to the authorities. Furthermore, the High Court pointed out that the District Magistrate had stated in his letter that the grounds were explained to the appellant in Hindi by the Police Officer at t.he ti:ne the Order and the grounds were served upon him.

In the view of the High Court, therefore, the explanation or translation of the grounds by the PolicP Officer at the time he served those on the appellant should be d .. emed to be enough to enable him to make an effoctive representation against hiR detention.

Mr. Bobde, for the appellant, has vehemently argued that the requirements of the Constitution had not been complied with inasmuch as cl. (5) of Art. 22 of the Constitution required that the grounds on which the Order of Detention had been based had to be communicated .o the detained person. His argument further was that "communication" of the grounds was not equivalent to serving the grounds in English upon a person who was not convel'l!ant with the English language, and that oral tra.mlation by the police officer, said to have been made to the detenue, was not sufficient compliance \Vith the requirements of the constitutional provisions, which must be fully satisfied in order that the detenue may be in a position to make an effective representation against the Order

of Detention. He also contended that we do not know in what terms the police officer translated the lengthy document or whether his translation was correct.

On behalf of the late !Jf Maharashtra, the lea.med Attorney-General first attempted to show that the appellant knew En11lish.

In this connection he hati referred to the aliidavit of the District Magistmtc, the exact words of which arc as follows:

2 S.C.R.

SUPREME COURT REPOR'rS

"He (the detenue) had also asked me to supply the grounds in Hindi to enable him to

understand the same. l admit that I had replied to this letter and had declined to eom- munieate the grounds in Hindi. I deny that this hJtS been done with a view to keep the petitioner in.dark as to the grounds of his detention. The petitioner as per my informa- . tion, is ail educated ma~ and ean understand English. The question th&t the petitioner did not underStand the grounds, therefore. does not a.rise. I deny that the petitioner is

entitled to receive the grounds in Hindi.

The grounds were supplied to the petitioner in the court language and also they were explained to him by the Police Inspector Shri W.B. Bobde who had served them on the t 't' " pe i 1oner ........ .

That statement of the District Magistrate is apparently based on the following statement, in the affidavit of Shri W.B. Bobde, the Police Inspector :

"The Order of Detention as well as the grounds of detention were translated by me orally in Hindi and explained to Shri Harikisan Kishorilal Agrawal, in the presence of the District Superintendent of Police, Xagpur City." It has not been found by the High Court that the appellant knew enough English to understand the grounds of his detention. The High Court has only stated that "he has studied upto 7th Hindi Standard, which is equivalent to 3rd English Standard". The High Court negatived the contention raised on behalf of the appellant not on the ground that the appellant knew enough English, to understand the case against him, but on the ground, a, s already indicated, that the service upon him of the Order and grounds of detention in English was enough communication to him fo enable him to

116f

Hariltisan

Tl., s1a1 .. f

M"'"""'"""

SiMo c.J.

I Ht

Horikis1111

v, Tltt 111•1,.f M .Ila as/ti'°

SU1~0 C.J.

924 SUPREiIE COURT REPORTS [1962) SUPP.

make his representation. We must, therefore, proceed on the l\8811mption th11.t the appellant did not know enough English to understand the l(rounds, contained in many para.graphs, as indicated above, in order to be able effectively to make his rt"presentation against the Order of Detention. The learned Attorney-General has tried to answer this contention in several ways. He has first contf'nded that when the Constitution speaks of communicating the grounds of detention to the dotenu!'I, it means communication in tho official language, which continues to be English ; 'llccondly the communication nood not be in writing and the translation and explanation in Hindi offered by the Inspector of Police, while serving the Order of Detention and the grounds, would. be enough compliance with the retjuirementa, of the law and thll Constitution ; and

thirdly, that it was not necessary in t.he circumstances of the case to supply the grounds in Hindi, in our opinion, this was not sufficient compliance in this case with the requirements of the Constitution, as laid down in cl. ( 5) of Art. 22.

To a person, who is not conversant with tho English language, service of the Order and the grounds of detention in English, with their oral translation or explanation by the police officer serving them does not fulfil the requirements of the law. As has been explained by this Court in the case of The Sf/JU of

Bomhay v. Atma Ram Sridhar Vidya, (1) cl. (5) of Art. 22 requires that the grounds of his detention should be made available to the detenue as soon as

may be, and that the earliest opportunity of making a representation against the Order should also bo afforded to him. In order tha.t the detenuu should have that opportunity, it is not sufficient thai

he h u been physically delivered the means of knowledge with which to make his representation.

In order tha.t tho detenue should be in a position effectively to make his represcnta.tion against tho Order, ho should have knowledge of thti grounds of

(II (19SIJ s.c.R. 157.

detention, which are in t.he nature of the charge against him setting out the kinds of prejudicial acts which the authorities attribute to him.

Communication, in this context, must, therefore, mean imparting to the detenue sufficient knowledge of all the ground& on which the Order of Detention is based. In this case the grounds are several, and are based on numerous speeches said to have been made by the appt>llant himself on different occasions and different dates. Naturally, therefore, any oral translation or explanation given by the police officer serving those on the detenue would not amount to communication, in this context, must mean bringing home to the detenue effective knowledge of the facts and cir<'nmstances on which the Order of Detention is based.

We do not agree with the High Court in its conclusion that in every case communication of the grounds of detention in English, so long as it continues to be the official language of the State, is enough complia:nce with the requirements of the Constitution. If the detained person is conversant with the English language, he will ne.turally he in a position to understand the gravamen of the charge against him and thefacts and circumstances on which the order of detention is bawd. But to a person who is not so conversant with the Enp; lish

language, in order to satisfy the requirements of the Constitution, the detenue must be given the grounds in a language which he can understand, and in a script which he can read, if he is a literate person.

The Constitution has guaranteed freedom of movement throughout the territory of India and has laid down detailed rules as to arrest and detention.

It has also, by way of limit&tions upon the freedom of personal liberty, recognised the right of the State to legislate for preventive detention, subject to certain safeguards in favour of the detained

Harikisan v.

The State of ,\.laharashtra

Sinha C.J.

J962 a.au ..

TIN St.u •f 14 Uar11s•tra

.SW.. c J.

JHI

FbU4? I.

person, as laid down in els. (4) & (5) of Art. 22.

One of those safegui.rds is that the detained peraon has the right to be communicated the grounds on which the ordor of detention has been made against him, in order that he may be able to make his representation against the order of dentention. In our opinion, in the circumstances of this oaee, it has not been shown that the appellant had the opportunity, which the law contemplates in his favour, making an effective representation against his detention. On this ground alone we declare his detention illegal, and et aside the Order of the High Court and the Order of Detention pa88ed against him.

Appeal allo!jled.

THE HO:N'ORA:i; tY SECRETARY, SOUTH INDIA

MILLOWl\"ERS' ASSOCIATION AND OTHERS

THE SECRETARY, COfMBATOH.E DISTRlill

TEXTILE WO~KERS' UNION [And connected avpeals) (P. B. GA.JENDRAGADKAR, and K. N. WANCHOO, JJ.)

I ndll8trial Di8puie-Boniu-Rehabilitation-Life of t.ztile mnchinery-C/aim in. ruptel of old machi~ Det1elopmntt rebate-D•dwction-U ae of dtprtciatwn amount-lnt.rut-Tu•o Reparate conce,.,.._When eonali It& one unit-Indian lnoome-kJ:c Act, 1922 (11of1922), •· IO

(2)(vi), Erp/anation (2), prolliao (b).

In respect of the di.pules which arose between certain textile mills a.ild their respective employees in regard to the bonus for the year 1956, the matter was reftrred to the Industrial Tribunal which made its award on September 5, 19~8.

The Tribunal held, (1) that the period allowed for rehabilitating textile machlne1y should be 25 years and n'>t 15 as contended by the appellants, and that eome addition should be made to the estimated life of the machinery by reference to

P. SINHA

Art. 22(5)

Article 22(5)

Art. 226

s. 491

Code of Criminal Procedure

s. 3(1)

Section 3(l)(a}(ii)

Preventive Detention Act, 1950

Art. 22( 5)

Preventive Detention Act, 1950

Art. 22

Art. 22

Art. 22

Art. 22

Art. 22


J962 a.au ..

TIN St.u •f 14 Uar11s•tra

.SW.. c J.

JHI

FbU4? I.

926 SUPREME COURT REPORTS [1962) SUPP.

person, as laid down in els. (4) & (5) of Art. 22.

One of those safegui.rds is that the detained peraon has the right to be communicated the grounds on which the ordor of detention has been made against him, in order that he may be able to make his representation against the order of dentention. In our opinion, in the circumstances of this oaee, it has not been shown that the appellant had the opportunity, which the law contemplates in his favour, making an effective representation against his detention. On this ground alone we declare his detention illegal, and et aside the Order of the High Court and the Order of Detention pa88ed against him.

Appeal allo!jled.

THE HO:N'ORA:i; tY SECRETARY, SOUTH INDIA

MILLOWl\"ERS' ASSOCIATION AND OTHERS

THE SECRETARY, COfMBATOH.E DISTRlill

TEXTILE WO~KERS' UNION [And connected avpeals) (P. B. GA.JENDRAGADKAR, and K. N. WANCHOO, JJ.)

I ndll8trial Di8puie-Boniu-Rehabilitation-Life of t.ztile mnchinery-C/aim in. ruptel of old machi~ Det1elopmntt rebate-D•dwction-U ae of dtprtciatwn amount-lnt.rut-Tu•o Reparate conce,.,.._When eonali It& one unit-Indian lnoome-kJ:c Act, 1922 (11of1922), •· IO

(2)(vi), Erp/anation (2), prolliao (b).

In respect of the di.pules which arose between certain textile mills a.ild their respective employees in regard to the bonus for the year 1956, the matter was reftrred to the Industrial Tribunal which made its award on September 5, 19~8.

The Tribunal held, (1) that the period allowed for rehabilitating textile machlne1y should be 25 years and n'>t 15 as contended by the appellants, and that eome addition should be made to the estimated life of the machinery by reference to

practical considerations as to when the employer would be able to make rehabilitation in fact, (2) that in the case of old machinery purchased, only half of the claim for rehabilitation should be normally allowed and whether more or less should be allowed would depend upon the age of the machinery at the time of the purchase, (3) that the amount al lowed in respect of the development rebate could not be treated as a prior charge, and ( 4) that interest in respect of the amount of depreciation used by way of working capital could not be allowed.

Held: (I) that it is well settled that in determining the claim of the employer for rehabilitation twl factors are essential to ascertain, viz., (I) the multiplier which has been determined by reference to the purchase price of the machinery and the price which has to be paid for rehabilitation or replacement, and (ii) the divisor which has to be determined by deciding the probable life of the machinery. When determining the divisor, it is not open to the Tribunal to add to the estimated life of the machinery on the ground that the employer may, in fact, not be able to rehabilitate or replace his machinery.

In finding out the life of the machinery in a. particular case, no rule can be laid down because the question has to he determined on the evidence. adduced by the parties.

The Mill Owners Association, Bombay v. The Rashtriya Mill Mazdoor Sangh, Bombay, [1950] L.L.J. 1247 and Associated Industries Ltd. v. It. Workmen, (1958) 2 L.L.J. 138, cc, nsidered.

(2) that it would not be riitht to insist that an employer who purchases second hand machinery must rehabilitate it by purchasing second hand machinery in turn, and in dealing with the question of the rehal:iilitation of second hand machinery purchased by an employer it would he erroneous to hold" that only 50% of rehabilitation amount should he allowed.

(3) that the development rebate allowed is in part recognition of the claim for depreciation, and proviso (h) to explanation (2) ofs. 10(2)(vil of the Indian Income-tax Act, 1922, as introduced by the Finance Act, i 958, cai; mot he treated as constituting a bar against taking the said amount into consideration in ascertaining the available surplus. The expression "distribution by way e>f profits" in the said proviso means the distribution of profits to the partners. ( 4) that if an employer shows that the amount of depreciation was actually available and has, in fact, been used as working capital during the releyant year, he would be entitled to claim a reasonable return on the said amount.

The H11r1or11ry Seor1tory, Sout1' India M jl/qWnlfs'

A.ssociarion

•• r1t1 Seci elarJ, Coimbatore Distri&t

Textile Workers'

Union

Tlo1 HoOOf'<':I 811"111<;,, StNJll fUia Millnwt11rJ'

Ass1Kiohan

Y, Th s,,,,,.,,.

CWnh11tor1 Di.Jtriel

T txlil1 W 01t,,1'

llttion

Pet/ad Turkey Red I>ye Work. Ltd. v. [)yea&. CM,,.ical ll'orl.m' Unirm, Petlad, [1960] 2 S.C.R. 906 and My"Jre Kir/nskar Ltd. v. /ts Workmen, [1961] 2 L.L.J. 657, relied on.

The appellant was runnin11, two millr, one at Coimbatore and the other at Madurai, the latter having been started later in 1956. The appellant's contention before the Tribunal in deal ing with the question of bonus payable to the employees In the two respective mills, was that the two mills should he treated as separate units and not as one.

The Tribunal took the view that the two mills constituted one unit. The facts showed that the two mills were situated at places separated by nearly 200 miles, that they manufactured different count• of yarn, that the workers working in the two mills were different and were not transferable from one mill to the other and that different accounts were maintained. It was also found that the profit and loss account for both the mills was one consoJl. dated account.

Held, that the finding of the Tribunal that the two mills constitut•d one unit could not be considered to be erroneous in ta,\·,

The question as to whether two different concerns run by the same employer constitute one industrial unit f'lr the purpose of bonus ha re 'e detcrmir--1 In the light of the facts in each case.

Functional integrality is a very important test but it is not a decisive one.

In the complex and complicated forms which modrrn industrial enterprise assumes it would be unreasonable to su~cst that anv one of the relevant tests is decisive ; the importance and significance of the tests would vary according to the facts in each case.

The question must always be determined bearing in mind all the relevant t., ts and co-relating them to 'the nature of the enterprise.

Where two concerns run by the employer are allied to ••ch other, the question would have to be considered whether thev are functionally integrated or mutually inter-dependent.

If thev are that would be an important factor in favour of the plea that the two concerns constitute one unit.

Aaaocinlitd C•"""' Compa11iu Ltd . . v. Thar Worimti& [19611]1 S.C.R. 703 Pratap Pr.u v. TM.ir Worl:nu11, f1960) 1 L.L.J. 497 and Pakahiraja StudW. v. If.A Work,,.u, 1961) 2 L. L.J. 380, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeals Noe. 419of1960, 302of1959and159of1961,

...

Appeals from the Awards dated September 5, 1958, September 15, 1958 and January ll, 1960, of the Industrial Tribunal, Madras, in I.D. Nos. 13 of

Hl58, 32 of l9fi7 and 47 of 1959 respectively.

A.V. Viswanatlui Sastri and G. Gopalakrishnun, for the appellants. .B.R. Dalia and Rame, shwar Nath, for respondent No. l (in Appeals Nos. 419 of 60 and 159 of 61).

M.K. Ramarnurthy and T.S. Ve:nkataraman, for respondent No. 2 (in C.A. No. 419 of 60) and respondents Nos. 2 and 4 (in C.A. No. 159 of Hl6l ).

M.K. Rarnamurthy and Rarneshwar Nath, for the respondent (in C.A. No. 302 of 59) .

1962. February l. The Judgment of the Court was delivered by

Thi Honaraty Secretory, South India Milt-owners'

Association

T~ 8ecrttt#y, Coimhator• District

Textili Workeis'

Union

GAJENDRAGADKAR, J.-These three appeals arise Gajendrafadkor J. out of an industrial dispute between the industrial employers who are the appellants and their respective workmen who are the respondents in respect of the latters' claim for bonus. They have been heard together because they raise some common questions of general importance. We would first set out briefly the material facts in the three respective appeals.

The Honorary Secretary, The South India Millowners' Association, and other mills are the appellants in Civil Appeal No. 419/60. A dispute arose between 44 mills and their respective employees in regard to the bonus for the year 1956. The said dispnte wns referred for industrial adjudication to the Industrial Tribunal, .l\fadras.' State Government on the 13th March 1958. To this reference, the different mills and three unions which represented the employees were made parties. It appears that for the four years prior to 1956, the question of bonus had been disposed of by a tripartite Boan! of Arbitration appointed for each year by the Government. For the year 1956, negotiations were

TAI H.-ary 8e&r11-,, Btidia /Adi. J1Ulou.11s'

AssO<ialion ...

TA. 8"t1l4r:1, o~Dislric1 r.mu w ... m,, u,.;,,,,

Glfi-.,.il4• J ·

930 SUPREME OOURT REPORTS (1962] SUPP.

held at governmtnt&l level to evolve & &&tiafaotory solution by consent but since the eaid negotiation11 failed, the parties agreed on some interim payment

leaving the rest of the dispute to be adjudicated upon by the Industrial Tribunal. That Li the genesis

of the reference On the 5th of September, 1958, the Tribqnal made its award. It considered the several rival contentions raised by the parties in support of their respective claims and awarded bonus ranging from 7 months' basic wages to I month's basic wagoa according to its finding as to the available 8Urpln1 in respect of each mill. It is against lriis award that the appellants have come to this Court by special leave.

At the time when the award was pronounoed tho decision of this Court in the Assooiated Cement Cos. Lt.d., Dwarka Cement Works, Dwarka v. lt8 Work

men (') h&d not been pronounced, In that decisioi; i, this Court has considered all the relevant probloms which arise in the working of the Full Bench formula governing tho award of bonus to industrial labour :ind some of the points which the appella.nts wanted to raise againllt the award in question are now concluded by that decision. That is how in the present appeal, the appellants have oonfined themselves to the points on whioh the Industrial Tribunal has deoided oontrary to the deoision of this Court in the case of Assooiated Cement Companies Ltd. or which are not oovered by that Judgment.

Civil Appeal No, 159/61 arises out of & reference made by the State Government of Madras on the 3rd October, 1959, in respeot of an industrial dispute for bonus for the year 1958 between 51 mille and their respeotive employeee.

The Industrial Tribunal whioh heard this dispute pronounoed its award on the 11th of January, 1960. In dealing with this

(I) (1!159] S.C.R. 9'l5. (

2. s.c.R.

SUPREM~ COURT REPORTS 931

dispute, it naturally followed the same Iirle of app roach which it had adopted in dealing with a similar dispute for the year 1956 from whi<.Jh Civil Appeal

No. 419160 arises.

As a reult of its finding, the.

Tribunal has directed 24 mills to pay bonus to their re8pective employees, the rate for the same ranging from 6 months' to half a month's basic wages according to the available surplus in each case. It is against this award that the 23 mills have come to •this Court by special leave in this appeal.

Civil Appeal No. 3(2/59 arises from an industrial dispute for bonus between the appellant, the Management of the Express Newspapers (rrivate) Ltd. and its employees, the respondents. i Tl)e claim for bonus which has been referred by the State Government for adjudication to the Industrial Tribunal at Madras on the 19th.August 1957, relates to the years 1954-55 and 1956-1957. The appellant in this case carries on the business of publishing certain newspapers and periodicals in English and in thevernacular from four centres in India. viz., Madras, Madurai, Bombay and Delhi.

After hearing the PIJ!ties an<l considering the evidence adduced by them in support of their respective contentions, the Tribunal disallowed the respondents claim for bonus for the years 1954-55 but allowed it for the years 1956·57. It has found that for the year 1956-57, the appellant had in its hands Rs. 1,60,000 as available surplus and so, it has directed that not less than 80 per cent of the said surplus should be made available for bonus; that is to say, it has held that Rs. 1.25 lakhs should be distributed by way of bonus which worked roughly@ halfa month's total wages including dearness allowance.

It is

afust this award that the appellant has come to

tis Court by special leave.

In Civil Appeal No. 419/00, the first P"int which has been raised by Mr. Sastri on behalf of the appellant relates to the question of rehabilit tion. In

the working of the formula the multiplier has been

IHI

TA, lil_.,.,,

8'&r1lor~, Snlh lndi• JlUltwt"1'1•

A.SJ..W...

•• Thi Sur,,.,.7, Ooimb•tor• Dislri<I

_Tex'til.- Wtriets'

Unitn

Gajentlr•t.&Ur J.

TluH-ory S#r1t11ry, 80Mlb /Wia Millownns~

A s.st¥Uttioll

v. S, c-r1ttll'_,, c..ln.Neo. 1 Diahiel

TtJdil1 Wod., r1' u,.;.,,

932 SUPREME OOURT REPORTS [1962] SUPP.

duly determined by the Tribunal and there is no dispute about it before us. It is against the divisor adopted by the Tribunal that the appellant is aggrieved and so, the question to consider is whether the Tribunal was right in holding that the life of the textile machinery should be taken to be 25 years and not 15 as alleged by the appellants, Mr.

Sastri contends that the appellants had examined two experts Mr. K. Srinivasan and Mr. Seetharaman and their evidence consistently was that the life of the machinery would be 15 years and no more. It is urged that this evidenoe should have been accepted by the Tribunal bee&Ul!ll it has not been shaken in crQBS-examinatien. We are not impressed by this argument. The Tribunal has carefully examined the evidence of the two experts and has given .satisfao. tory reasons for holding that the estimate made by them in regard to the life of the machinery is too modest. In fact, as the Tribunal has pointed out, though the experts purported to eay categorically that the lifo of the machinery could not be more than 15 years, they had to admit that in several cases machinery which was muoh older than 15 years was working not llll8&tisfactorily and so the statement about the estimated life of the machinery made be the witnesees could not be accepted at its face value. Indeed, as the Tribunal observes, experts

while giving evidence about the estimated life of the machinery are apt to be too teehnioal and sometimes dogmatic but their evidence has to be judged in the light of tho probabilitee, the admiaeione made by them in crOBS-examination and other evidence about older machinery which wae found working in the different mills. Therefore, we do not think that on the question as to the estimated life of the textile machinery in question we would be justified in interfering with the conolueion of the Tribunal that the said life oan be reasonably estimated at 25 years.

It is then contended that the estimate made by the experts a.bout the life of the textile machinery was consistent with the period of 15 years allowed for the rehabilitation of textile machinery be the Labour Appellate Tribunal which evolved the formula in the case of The, Mill Owne, rs' Associatian, Bamhay v.

The, Rashtriya Mill Mazdoor Sangh, Bamhay('). The argument is that since 15 years' period was allowed for rehabilitating the machinery, that should be taken to the normal estimate about the life of the machinery. On the other hand, it is urged by the respondents that 15 years' period was allowed by the Labour Appellate Tribunal in the case of The,

J1 ill OW'Mrs Association (') even though the machinery was more than 25 years old and that would suggest that the life of the machinery is 40 years. We are not prepared to accept either argument because, in our opinion, the life of the machinery in every case has to be dete1mined in the light of evidence adduced by the parties. What the Labour Appellate Tribunal did in the ca8e of The, Mill Owne, rs' 4ssociation(')wa.s to adopt an adhoo basis for allowing rehabilitation within 15 yea.rs because it was obvious, and indeed not disputed, that the textile machinery with which the Tribunal was dealing had become obsolescent and very badly needed rehabilitation. Indeed, it was because of this admitted position, that the problem of rehabilitation assumed an important place in the discussion before the Tribunal when it evolved the formula. Therefore, from the decision in the case of The, Mill OW'Mrs' Associatian(1) no rule can be safely evolved as to the probable life of the textile machinery.

An attempt was then made to suggest that the rate of 15 per cent at whioh depreciation is allowed under s.10 (2l(vi) of the Income-tax Act for machinery which is used in multiple shift would approximate to the estimate of 15 years made by the experts in the present case. But when the actual

(I) [1950] L.L.J. 1247.

Th• Honorory Becrltary, India M illomturs'

Association

••• Th. Stcr1tarJ, Coim6at0re Disltiet

Textile Work.rs'

U11ion

G•ftndrfllll"fkar J.

IHI

n.H-"'7 ....... &u<J.

IW Millffl'"lf'I' ,, __

v. n. ll ..... .,, c.w.i..1 District

T,_, U. W•iw,' ucalculations were ma.de, it was conceded that the rate of 15% at which depreciation is allowed in respect of machinery used under multiple shifts works at 18 yea.rs and not 15 years. Therefore, even the argument based on the depreciation rate permitted by the Income-tax Act is of no avail. In conclusion, we confirm the finding of the Tribunal that tho estimated life of the textile machinery in question should be taken to be !!5 years.

The next contention which has been seriously pressed before us is in regard to the finding of the Tribunal tbat some addition should be made to the estimated life of the machinery by reference to

practical considerations as to when the employer would be able to make rehabilitation in fa.ct. The Tribunal oonsidbrcd the financial position of the respective mills, the availability of the new textile machinery, the difficulty about the foreign exchange, and so it came to certain ad hoc conclusions while deteqnining the divisor to be adopted. It held that in' the C&&e of machinery purchased before 1947 whose life expired by that year, the period for rehabilitation should be 15 year from 1917. In regard to machinery purchased prior to 1947 whose life does not terminate by that year, the period for carrying out modernisation would be fixed at 10 years after the expiration of the life and in the case of machinery purchased after 1947, that period will be 5 years nfter its normal life. In other words, the Tribunal decided that the rehabilitation requirement a.bout the first category of machinery should be lipread over 15 years, that1for the second category should be spread over the remainder !lf its life plus JO years and for tho third category, the normlll life of 25 years plus 5 years. Mr.

Sastri contends that this ad hoc addition made to the lifo of the machinery determined by the Tribunal o~ hypothetical or practical considerations 1s justified. In our opinion, this contention is wellfounded. It is now well settled that in determining

J •

. '

the claim of the employer for rehabilitation, two factors essential to ascertain; first the muJt.iplier and that has to be done by reference to the purchase price of the machinery, and the price which has to be pa.id for rehabilitation or replacement; the second problem is the determination of the divisor and that has to be done by deciding the probable life of the machinery. Once the probable or estimated life of the machinery is determined there is no scope for making any. additions to the number of yea.rs thus determined on any extraneous considerations as to the financial position of the employer or the availability of the machinery. If the amount awarded for rehabilitation for any given year is not utilised for that purpose, the same may be ta.ken into account the next year-that is a.II. But when determining the divisor, it is not open to the Tribunal to add to the estimated life of the machinery on the ground that the employer may, in fact, not bl' able to rehabilitate or replace his machinery. Therefore, there is no doubt that the Tribunal was in error in ma.king further additions to the estimated life of textile machinery. The divisor must be adopted on the basis of the finding that 25 years is the estimated life of the machinery and no more.

The next contention raised by Mr. Sastri is in regard to the rehabilitation allowed by the Tribuna.l in respect of the second hand machinery purchased by Lotus Mills Ltd., one of the appellants before us. The Tribunal thought that in the case of old machinery purchased, only half the claim for rehabilitation should normally be allowed and it added that whether more or less should be allowed would depend upon the age of the machinery at the time of the purchase. 'J'hen it considered the evidence in respect of items I to M as disclosed in the rehabilitation statement Exhibit M. 47 (B) furnished by the Lotus Mills Ltd. It appears that the item~ of machinery in question had all been

I96a

Tiu HonotlllJ S1cr1tary, 8outA India M illOWllffs'

AastWitllion

•• TM Seeretary, Coimbator1 DUtriet

T .xtik WorUr1 1 Unioii

~M!

!'AIR__, 8HT1t.:/, SINIA l.&MiU.,_, l

AssoA•INtt

•• Tl" 81nt'4r7, C,.,..1or, Di11rict

T11tli/1 Woritri' u,.;,,,

G•jm<lrq.U.• J,

purchased prior to l!HO and so, the Tribunal fixed the rehabilitation at 30%. In dealing with this question, however, the Tribunal has observed that full rehabilitation requirement cannot he allowed in respect of second hand machinery without the depreoi'l.tion being deducted from out of the total requirement. Acting on this basis, the amount has been fixed at 30%. Mr. astri contends that if tho Tribunal proceeded on the bal!is that second hand machinery must ho replaced only by second hand machinery. It was obviously wrong. We think this contention is well founded. It no doubt appears that in the case of Associated lndustrie.~ Ltd., and Its Workmen (1) the Industrial Tribunal has observed that in the case of second hand machinery it would be reasonable that the employer should meet half the cost of the rehabilitation of the plant from other sources, either by increasing its share capital, Qr from other reserves that may have accumulated in the course of years. Indeed, it iii on this decision that the Tribunal has founded its decision in dealing with the question about the second hand machimry purchased by the Lotus Mills Ltd. in I!HO.

In our opinion, it would not be right to insist that an employer who purebases second ham! machinery must rhabilitnte it by purchasing second hand machinery in tum. Tnat would be obviously unreasonable and unjust, for ought one knows second hand machinery may not be available.

BeBidee, the employer is entitled to say that he wants ro purchase now machinery by way of replaeement.

Therefore, if thn Tribunal intended to lny down a general rule that in dealiug with the question of the rehabilitation of a scccmd hand machinery purchased by an cmplciycr only 50% of rehabilitation amount should Ii<' all.med, that would bo e1ro11cou8. 011 the otl11•r hand, it is true that in determining tho amount of r<•habilitation and rleciding the q111•Htio11 of mult.ipli"r, thi:

(ll [1951!]2 L.LJ. 1311, H".

, ..

2 S.C.R.

SUPREME OODR.T REPORTS 937

cost price of the machinery must be ascertained and

this can be done only by enquiring for how much the machinery was originally purehased when new,.

Depreciation amount accruing due after the first purchase must also be ascertained. If the purchas~ money is determined but it is difficult to ascertain the depreciation amount thereafcer, then at the highest the whole of the purcha.se money could b3

adopted as depreciation amount and then the amount of rehabilitation can be determined.

Whatever relevant facts are required to be considered in dealing with this question must no doubt be ascertained. But if all relevant factors are ascertained, then it cam1ot be said that because rehabilitation is claimed in respect of second hand machinery, therefore only half or one-third of the amount should be allowed. In the present cabe, the relevant material about 'the original price and subsequent depreciation prior to the purchase by the appellant mills has not been adduced before the Tribunal and so, the Tribunal was justified in adopting some ad hoc basis. But grievance is made not so much against the particular ad hoc basis adopted by the Tribunal in the present case as against the general principle about which the Tribunal has made certain observations. As we have already made it clear, those observations do not correctly represent the true legal position in the matter.

That takes us to the last point raised in this appeal on behalf of Saroja Mills Ltd. which is one of the appellants. Saroja Mills Ltd. is a compauy which runs two mills, viz., Saroja Mills Ltd., Coimbatore. and Thiagaraja Mills at Madura.

The latter has been started in 1956, while the former has been in existence for many years. It was urged on behalf of the appellant befor? the Tribunal that in dealing with tho question of bonus payable to the employees in the

wo respective mills, the two mills should be

T/,. Hwt!'Y S1cr1tat,, Botti A: India MjJJewrurs'

iJ.saotiilt Oii

The 8w1lar_v,

Caot1.Dist1icl

T1x1ile Wor1trs• um..

Gojendrogadhr J.

lHB

938 SUPRJDIE OOURT REPORTS (1962) SUPP.

treated as 11eparate unitR and not as one. The Tribunal has rejected this contention and it has

held that the two mills constitute 0no unit and tho question of bonus payable to the employees working in the two respective mills, must be oon sidered on that basis. It iB against th is finding that Mr. Sastri has made a serious grievanca before us.

He <'ontends that there are several factol'B which militate against tho validity of the conclusion of the Industrial Tribunal that the two mills consti tute one unit. The two mills are situated at two different places separated by a dishnce of nearly 150 to 200 miles; in starting the Thiagaraja Mills, the necessary cotton, stores and personnel were secured by the Company from Mcenakshi Mills at Madura; the workers working in the two mills are different and they arc not transfcrablo from one mill to the other; the two mills manufacture

different counts of yarn and diffrrent qualities and the raw material required !Jy them is different; they maintain different accounts and their Tex-marks are differ1nt; when the Thiagaraja Mills was started in I 9; i6, the Co., b'.lrrowed an amount uf nearly Rs. 3~.:iO lakhs from the Indian Finance Corporation and Pudukottai Co. Ltd. and the same WBB debited to the Thiagaraja Mills.

Therefore, all these factors inclicato that the two mills are different units, they work as such and sh011ld not b1• takon to constitute one unit for the purpose of determining tht• question of bonus.

On the other hand, Mr. Ramamurthy contends that there aro sevt•ral other conoiderations which

jw; tify the conclusion of the Tribunal that the two mills constitute one unit.

Ho argues that it is important to bear in mind that the two mills are owned and conducted hy one Company, the Saroja Mills Ltd. in fact, the Thiagarnja Mills at Madura has no independ1nt l1gal existence except a~ a noucern run by tho Company; ultimately, the profit

•• ,

I t

and loss aCC<?, nt for both the Companies is one consolidated account and dividend would be paid on the said account; separate accounts are no doubt kept for convenience because the two mills are situated in two different places; but the maintennnce of separate cash hook and ledger are not behalf as important as the maintenance of one profit and loss account which the Company has to keep as a whole; the borrowing on which the appellant reliPR is the borrowing of the Company and as such, the Company is the debtor and not the mills at Madura; the distance between the two mills can hardly be important because the features on which the appellant relies may well be present in the case of two mills owned and run by the same Co. though the mills may be situated side by side in the same locality; what is important in this connection is the fact that the business carried on by the two mills is of the same type and character though the quality of yarn produced may not be the same.

Therefore, it is urged that the Tribunal was right in holding that the two mills constituted one unit.

The question thus raised for our decision is not always easy to decide. In dealing with the problem, several factors are relevant and it must be remembered that the significance of the several relevant factors would not be the same in each case nor their importance. Unity of ownership and management and control would be relevant factors.

So would the general unity of the two concerns; the unity of finance may not be irrelevant and geographical location may also be of some relevance; functional integrality can also be a relevant a.nd important factor in some cases. It is also possible that in some cases, the test would be whether one concern forms an integral part of another so that the two together constitute one concern, and in dealing with this question the nexuR of integration in the form of some essential dependence of the one on the other may assume

The Honoraf'y Secretary, South India Millownn•'

Association

The SecrelO'l'y, Coimbatore District

Textile Worker1l

Union

GnjendragadkJr J.

19"

TitH_.,, Bm1tar,, &1111' loii• Milloam'

Au"ictiOfl

T/I, s,.,.i.ry, CoiwtHton Di•lriet

Tuli/1 Workers'

Unit>•

940 SUPREME OOURT REPORTS [1962] SUPP.

relevance. Unity of purpose or design. or even parallel or co-ordinate activity intended to achieve a common object for the purpose of carrying out the busineSB of the one or the other can also aasumo relevance and importance, r; ide Ahm~

M anuja.cturitl{J & Oalioo Printing Co. LU. v. Their

If orkrnen (').

Mr. Sastri, however, contends that functional integrality is a very important test and he went so far as to suggest that if the said test i~ not satisfied,

then the claim that two mills constitute one unit must break down. We are not prepared to accept this ar1mment. In tho complt1x and complicated forms which modern industrial enterprise assumes

it would be unreasonable to suggest that any one of the relevant tests is decisive; the importance and si, iDifica11ce of the tests would vary according to the facts in each caoe and so, the question must always be determinetl bearing in mind all the relevant tests and co-relating them to the nature of tho enterprise with which the Court is concerned.

It would be soen that the test of functional integrality would be relevant and very significant when the Court is dealing with difforenl. kinds of busi nesses run bv the samo industrial cstablihmt>nt or employer. Where an <-mployer runs two different kinds of businell8 which are allied to each other, it is pertinent to enquire whether the two lines of

businel!ll are funotionally integrat!>d or are mutually inter dependent. If they arc, that would, no doubt,

be a very important factor in favour of the plea that the two lines of business constitute one unit.

But the test of functional in'.egrality would not be as important when we are dealing with the case of an employer who runs the sam11 business in two different plaotll!. Tho fact that the test uC fun<•· tional integrality ie not and generally cannot be satisfied by two such concerns run b; v the i.ame

(I )[1951] 2 L.l.J. ~7.

employer in the same line, will not necessarily mean that the two concerns do not constitute one unit. Therefore, in our opinion, Mr. Sastri is not justified in elevating the test of functional integrality to the position of a decisive test in every case. If the said test is treated as decisive, an industrial establishment which runs different factories in the same line and in the same place may be able to claim that the different factories are different units for the purpose of bonus.

Besides, the context in which the plea of the unity of two establishments is raised cannot be ignored.

If the context is one of the claim for bonus, then it may be relevant to remember that generally a claim for bonus is allowed to be made by all the employees together when they happen to be the employees employed by the same employer. We have carefully considered the contentions raised by the parties before us and we are unable to come to the conclusion that the finding of the Tribunal that the two mills run by the Saroja Mills Ltd. constitute one unit, iil erroneous in law.

In this connection, it would be necessary to refer to some of the decisions to which our attention was drawn. In the case of Asaociatbl CemR, nt Campanies LUl. and their Workmen (1), this Court held that on the evidence on record, the limestone quarry run by the employer was another part of the establishment (factory) run by the 11ame employer within the meaning of Section 25E (iii) of the Industrial Disputes Act. It would thus be seen that the question with which this court was concerned was one under s. 25E (iii) of the Act and it arose in reference to the limestone quarry run by the appellant Company and the cement tactory owned and conducted by it which are normally two different businesses. It was in dealing with this problem that this Court referred to several tests which would be relevant, amongst

(1) [1960] l.S.C.R. 703,

The Bonorazy Secree.r,,- South India M illowners'

Association

The Swrd"'1f, Coia1"tor1 Di$hid

T .xti/1 W erM•'

UniMI

GqjendragAl/br J,

'l'IN Hooarory Bmll!'li.!:.:," hdia Mil s' A.ss°'*ioft

v. :flw !it<rolary, Coimb_, District

T ,.1; i, Wtriers' u.Um

them being the test of functional intogrality. In dealing with tho question, S. K. Das, J., who spoke for the Court, observed that it is perhaps impoBBible to lay down any one test as an absolute and invari able test for all cases. The real purpose of these teats

is to find out thl' true relation betwee:Q the parts, brancbAs, units, et-0. If in their true relation they constitute one integrated whole, we say that the establishment ie one; if, on the contrary, they do not constitute one inter<, rated whole, each unit is then a separate unit.. It was also observed by the Court that in one case, the Wlity of ownership, management and control may be tho important test; in another case, functional integrality or gene ral unity may be nn important test; and in still another case, the important test may be the unity of employment. Therefore, it is clear that in applying the test of functional integrality in deal

ing with the question about the interrelation between the limestone quarry and the factory, this Court has been careful to point out that no test can be treated as decisive and the relivance and importance of all the test will have to be judged in the light of the facts in each case.

In the oase of Pratap Pr(',88, m. and Their Workmen,(') this Court had to deal wit.h the question as to whether the Pratap Press started by tho proprietor, Narendra, in 1951 and the newspaper 'Vir Arjun' started by him in 1954 constituted one unit. It appeared in evidence that the Press also printed and published Daily Pratap which was

ownod by Narondra and his partner. Thus, the problem raised before this Court was whl'ther the business of running Vir Arjun which is distinct and

different from tho business of running a Pl'f'8B, constituted a part of the same unit as tho Pratap Press itself and in dealing with this question, this Court reiterated the same principle that the applicability and the signifi0&noe of the relevant tests would

(I) [1960J I LJ.J. •97.

depend upon the facts in each case. Where the

Court is dealing with two different kinds of busi - ness conducted by the same owner, th1> test of functional integrality naturally aesumes importance and it was that the test which was empha.11ised by this Court in coming to the conclusion that the Press and the Paper did not constitute one unit. Besides, the conduct of the proprietor in dealing with the two businesses and other relevant facts were taken into account in reaching that conclusion.

In Palcshiraja Studios v. Its Workmen, (1) this Court was dealing with a case of the managem('nt of a cinema studio which also carried on the business activities of producing films and taking dist, ribution rights of pictures, and in coming to the conclusion that the two lines of business were not distinct but together constituted one single industrial unit, this Court emphasised the importance of the \est as to whether there is functional integrality and unity of finance and employment of labour.

Thus, it would be seen that the question as to whether two different concerns run by the same employer constitute one industrial unit for the purpose of bonus, has to be determined in the light of facts in each case. As we have already indicated, after carefully considering the relevant facts in the present case, we are unable to hold that the conclusion of the Tribunal is erroneous in law.

That takes us to Civil Appeal No. 159/61.

The first point which has been raised in this appeal relates to the claim made by the Coimbatore Cotton Mills Ltd., one of the appellants, in respect of the development rebate "llowed to it to the extent of Rs. 1,25,000. Before the Tribunal it was urged that this amount should be treated as a prior charge but the Tribunal rejected the contention and we think, rightly. In this Court, the argument has

(I) (1961] 2 L.L.J. 380.

J96S

1h1 Ho1uw•f"J St&rttar_1, South India Millownera•

As•oet.Nn

•• Tiu r1er1l•r.J,

m/Jattll'I Dlffricl

Tetih Wor.bfos•

Uniott

Gajrndrattvl/oar J,

'1At llottoraty, /he•""' S...1' I .Uc Ji tlltwtUrJ •

. 4Hl!Ci9'io• • 7".&.n-11•')', Co"""'11tte Diltricl

Te.dill Worier•'

u111 ..

G.;-k•,.,,.... J.

944 SUPREME COURT REf()RTS [1962] SUPP.

ta.ken another form. It is urged that this rebate must ho loft out of account in determining the available surplus because there is a statutory bar which precludes thu appellant from utilising this amount for the payment of bonus. This argument ba.sed on the provisions contained in proviso (b) to explana.tion ( 2) of Section IO (2 )(vi) as intro duoed by the Finance Act XI of 1958. The relevant portion of the statutory provision on which reliance has been placed reads thus :-

"Provided that no allowance under this clause shall be made unless :-

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

(b) o.xcept where the asset!Seo is a company being a licensee within the mea

ning of the Electricity (Supply) Act, 1948 or where th(l ship has been acquired or the machinery or plant has been installod before the I st day of January, 1958, an amount equal to 75% of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by him during a period of ten yea.rs next following for the purpos~ of the business of the

undertaking, except :

(i) for distribution by way of divi donda or profits : .................. " It is the last clause which is the b11.11is of the present argument. Mr. Saatri contends tba.t bonus is awarded

out of profits available in the bands of the emplo yer and the statutory provision just quoted prohibits the employer from distributing tho development rebate a.mount allowed to him by way of profits. There is no substance in this argument.

What the statute prohibits is the distribution of the amount in question by way of dividends to the ahare-holdere or profits to the partners. In the

...

context, the distribution by way of profits means nothing else than the distribution of profits to the partners. Besides, it is obvious that the amount of bonus paid by an employer to his errployees is allowed to be treaterl as admissible expense under s. llJ(2)(x) of the Incometax Act. It is clear that the , development rebate allowed is in part recognition of the claim for depreciation and the provision in question cannot, therefore, be treated as constituting a bar against taking the said amount into consideration in ascertaining the available surplus in the hands of the employer during the year in question.

Therefore, the argument which has been urged before us in respect of the development rebate of Rs. 1,25,000 cannot be upheld.

It is true that in support of this argument Mr.

Sastri has relied on the decision of this Court in The Central Bank of India v. Their Workmen (1).

In that case, section lO(i) of the Banking Companies Act prior to its amendmPnt in 1956 fell to be construed. Section (I) (b) ; ii) provides, inter alia that: "No banking company shall employ any person whose remuneration or part of whose remuneration ta.kes the form of a share in the profits of the company". It was held that this provision prohibited the grant of industrial bonus to bank employees inasmuch as such bonus is remuneration which takes the form of a share in thf' profits of the banking company. We do not see how this decision can assist the appellant a.t all. What we are called upon to construe in the present case is the expression "for distribution by way of dividends or profits" and, as we have pointed out, the context makes it perfectly c!ear that the distribution by way of profits which is prohibited is the distribution by way of profits amongst the partners. Therefore, the decision in the case of

I. (I) [1960] I s.c.R. 200.

il1 ll"1trO.r:1 B1cr11a,, 6•utla Indi• .Mitl.rorurs'

Asstci•tiM

•• Tlte Stcrelo1, J, Cfttnllallf'1 Distric

T1Xtil1 W trklf's'

UniMJ

t1.; entra1U/i.,. J. \\

\ \

Th. HMorary 81crtklry, South India Al illownn1"

Associ4tion

Tiit Sut'etary, Coimbale11 District

T "'tit. W ., l:ns' u.,;..,

Central Bank of India is of no assist&nce to the a.pp

ellant in the present case.

Thor<· is one more point which needs to be considered in this appeal and that is in regard to the claim for interest made by one of the appell an ta, the Coimbatore Cotton fills Ltd., in respect of the amount of depreciation used by it by way of workin-' capita.I. The interest claimed a.mounts to Rs. 33.42!1. The Tribunal has held that the appellant is not entitled to claim any retum on depreciation and in that connection, it has referred to its earlier d<cieion in the case of Deccan Sugar Abkhari Co. Ltd.(1 ), and ha.s observed that it ha.d nothing to add tn the reasoning adopted in that caee.

Mr. Sai; tri contends that this view is clearly inoon sistcnt with the decisions of this Court a.nd this contention id well founded.

In Petlad Turkey Red Dye Works Ltd. v. Dye; J & Chemical, Workers' Union, Pet/ad ('J, this Court has held tha.t if a.ny portion of the reserve fund is found to have been actually utilised as working ca.pita.I in the y£-ar under consideration, it should be treated as entitled to a. reasonable rate

of return a.nd the a.mount thus ascertained deducted a.a a. prior charge in ascertaining the a.va.ilable sur plus. To the sa.mo effect is the decision of this Court in Mysore KirWJ/aJr LUl. v. Its Workmen (3).

In that case, thi.1! Court has held th.it the a.mount in the depreciation reserve proved to have been utili scd a.s working capita.I during the year in question should he taken into consideration for tho purpose of making provision for return on working ca.pita.I.

It is thud clear that if a.n employer shows that the a.mount of depreciation wa.s actually available a.nd has, in fact, been uied a.a working capital during

tho relevant year, ho would be entitled to claim a reasonable return on tho said amount. The contrary

(I) [1958] I L.L.J.653. (21 [19fi0] 2 S.f'.R. 906.

(3) [ 1961] 2 L.L.J. 657.

view expressed by the tribunal in the present case

must, therefore, be reversed.

In the two Civil Appeals No. 419/60 and 159/61, we have dealt with the general points rnised before us not beaause the appellants wanted any relief in rrspect of their contentions which we h 1ve upheld but because they wanted that the points in question should be decided for the> guidance of the Tribunal when it may have to deal with similar disputes between the parties fo future. Therefore, these two appeals are, in substance dismissed. Parties will bear their own costs.

That leaves Civil Appeal No. 302/59. In this appeal, as we have already noticed, the Tribunal has found the available surplus to be Rs.1,60,000 and it has directed that out of it Rs. 1.25 lakhs should bA distributed as bonus for the relevant year. One of the points which the Tribunal had to consider in dealing with the respondents' claim for bonus in this case was in regard to the life of the machinery and it held that the normal economic life of the printing machinery can be easily fixed at 20 year8.

Then it proceeded to consider what should be the period of spread over after the total rehabilitation requirement is ascertained, and following its decision in the award from which Appeal No. 419/60 arises, it purported to divide th" machiner.v into three categories and proceeded to make ad hoc additions to the normal life of 20 years already determined by it. We have already held that this ad hoc addition to the normal life of the machinery as determined by the Tribunal is not justified.

It is conceded before us by the respondents that if the addition thus made by the Tribunal is set aside, then there would be no available surplus in the hands of the appellant for the relevant year. In that view of the matter, it is unnecf'ssary to consider the other points which the appellant wa.nteGI to raise before us in the present appeal. On the bais

'"' He n-"'"1 becrdaty, Soulh lt1dit1 M UllWfllfs'

A1.roeiafion

The Secrett:ry, Coimbator1 Distrit; t

1'extilt Wtffklrs'

u.w.

Gt1jenir'1Mk•r J.

~H..,,...., S"retttrJ, S.U. /"""' Jli/1...-,'

il•10ri4Ji011 ... 'l'A1 S":r•""' ~'"" Dislri&t 7 ,.,; i, IF"'"'' um.

lllfl

Fdnoar; J I,

that the normal lifo of the printing machinery is

20 years, a divisor will have to be adopted and by the adoption of the proper divisor it would follow that there is no available surplus for the relavant year. That is why the award passed by tho Tribunal directing the appellant to distribute Ra. 1.25 lakhs byway of bonus amongst its employees for the year I !156-57 has to be set aside. The appeal is accordingly allowed; but there would be no order as

to costs.

BIPAT GOPE

STATE 0.1!' BIHAR

(.M. Hm..i.YA.TULLAH and J.C. S.ILUI, JJ.) Criminal Prowlure-CommiUmml proettding-Ortlu of di4cltatr; e l>y M agi4trate, First Ola&, after trying tlae wlwk caae -Procedure under s. 207A(6), Criminal Procedure Code Jol/Dwt4-l/ in ezcuo of jurisdktio-Code of CrimiMl P..-.

dure, 1898 (Act V of 1898), s, 207..4(6).

In procccdinl!.' under s. 207A(6) of the Code of Criminal Proccdwe the Magistrate discharged the accused after recording the evidenc~ in the case. The High Court on rev.illon set aside the order and directed the Magfatrate to commit the accused to stand trial before the court of scssbn. The Magiatrate examined witnesses, held spot inspection.

He did not stop to find out if there was evidence which, if believed, would establish, at least, a prima facie case, but went on further to disbelieve that evidence, by an elaborate and paimtaldng process of examination, in aid of which he brought to bear his own appraisal of inconsistencies, improbabilities etc. In •hort, he tried the whole case from one and to the other and established his point in a fairly elaborate order.

Held, that the jumdiction conferred by sub-s. (6) of s. 207 A, does not entitle the Magistrate to try the case on his own, and forestall the drcision of the court of session.

The order of discharge passed by him in the present case, therefore, wu in cxccas of jurladic:tion, and muat he set aside.

Art. 22

THE HONORARY SECRETARY, SOUTH INDIA MILLOWNERS' ASSOCIATION AND OTHERS

THE SECRETARY, COIMBATORE DISTRICT TEXTILE WORKERS' UNION

K. N. WANCHOO, JJ.

Indian Income-tax Act, 1922

[1960] 2 S.C.R. 906

Income-tax Act

Income-tax Act

Section 25E

Industrial Disputes Act

s. 25E

Finance Act XI of 1958

Companies Act

s. 207A(6)

Criminal Procedure Code

s. 207A(6)

s. 207