criminal appellate jurisdiction criminal appeal number 137 of
1957.
appeal from the judgment and order dated october 31 1956
of the madras high companyrt in criminal appeal number 20/1956. b.
dadachanji

b. aggarwala  s. n. andley j. rameshwar nath and p. l.
vohra for the appellant. r. ganapathy iyer and t. m. sen
for the respondent. k. daphtary solicitor-general of india h. j. umrigar
and t. m. sen for the intervener  union of india . 1960 february 26. the judgment of the companyrt was delivered
by
imam j.-this is an appeal on a certificate granted by the
high companyrt of madras. the appellant was tried by the special judge of
tiruchirappalli under s. 165a of the indian penal companye for
attempting to bribe mr. kaliyappan deputy superintendent of
police of ramanathapuram. the special judge came to the
conclusion that the charge framed against the accused had
number been established. he accordingly acquitted the
appellant. against the order of acquittal the state of
madras appealed to the high companyrt of madras under s. 417 of
the companye of criminal procedure. the high companyrt came to the
conclusion that the evidence established that the appellant
had attempted to bribe the aforesaid deputy superintendent
of police. it accordingly companyvicted the appellant under s.
165a indian penal companye and sentenced him to 6 months
rigorous imprisonment and a fine of rs. 1000 in default
to undergo further rigorous imprisonment for 6 months. according to the prosecution case the appellant attempted
to bribe mr. kaliyappan the deputy superintendent of
police by offering him a bum of money companytained in an
envelope at his bungalow in the morning of june 14 1954.
in order to appreciate the circumstances in which the bribe
was offered reference to certain events which led to the
incident
on june 14 at the bungalow of the deputy superintendent of
police becomes necessary. in village irwadi there are two
factions one headed by the appellant and his brother and the
other headed by the village munsif. on june 3 1954 two
complaints reached the keelakarai police station one by the
appellant against the village munsif and the other by the
village munsif against the appellant. according to the
appellant on june 3 1954 after prayers in the mosque the
village munsif had abused him and had attempted to murder
him with a knife. some persons intervened but he managed to
escape but was chased by the village munsif to his house. the version of the village munsif was that he was busy that
day preparing the receipt for the release of the appellants
impounded cattle when the latter abused him beat him with
his shoe and kicked him in the stomach causing minumber
injuries. on june 5 1954 the appellant met mr. kaliyappan
at the central bus-stand at madurai and handed over to him a
petition ext. p-1 in which he companyplained against the
village munsif. mr. kalivappan made ail endorsement on this
petition directing the inspector of ramanathapuram circle to
send for both the parties and warn them against doing acts
which would create a breach of the peace in the village and
that this petition was number to be sent to the sub-inspector

w. 8  as it was alleged that he was siding against the
appellant. on june 12 1954 mr. kaliyappan sent a memo
 ext. p-2  to the inspector of ramanathapuram circle
directing him to take steps to see that peace was preserved
in the village. this police officer was also asked to take
action against the offenders with respect to whom there was
evidence in companynection with the occurrence of june 3 1954.
mr. kaliyappan also in view of the situation had directed
this police officer to see whether steps should number be taken
to seize the revolver of the appellants brother rashid for
which he had a licence. the inspector of ramanathapuram
circle thereafter prepared a detailed report  ext. p-7  of
the result of his enquiry and handed it over to mr. kali-
yappan on june 13 1954. on the night of june 13 1954 at
about 10 p.m. the appellant went to the
bungalow of mr. kaliyappan the deputy superintendent of
police at ramanathapuram and companyplained against the
inspector of police of ramanathapuram circle and the sub-
inspector requesting the s deputy superintendent of police
to look into the matter personally and number to leave the
investigation exclusively in the hands of the inspector. mr. kaliyappan told the appellant that he knew numberhing about
the case and companyld number say or do anything off hand and that
the appellant should see him about a week later by which
time he would have perused the record and would be in a
position to look into his grievances. according to the
appellant however the deputy superintendent of police had
asked him to companye to him next morning. on june 14 1954 according to the prosecution the
appellant went to mr. kaliyappans bungalow at about 7-15
a.m. who was at that time looking into certain papers. he
was informed that a visitor bad companye to see him. the
appellant accordingly entered his office room when he again
complained to the deputy superintendent of police against
the village munsif. at the same time he presented to this
police officer a closed envelope. mr. kaliyappan thought
that the envelope companytained a petition but on opening it he
found that it companytained currency numberes. he was annumbered at
the companyduct of the appellant. he threw the envelope at the
appellants face but the envelope fell down on the floor
and the appellant picked it up. the deputy superintendent
of police called his office orderly but as there was no
response he went out of the office room and told his milk-
maid to get the camp clerk. by that time the orderly turned
up. the appellant had in the meantime remained in the
office room and on the appearance of the orderly mr.
kaliyappan asked the appellant to produce the envelope which
he had thrown down and which the appellant had picked up. the appellant after taking out of his pocket some currency
numberes placed them on the table without the envelope. subsequently during the police investigation torn bits of
paper were companylected from near the office window and it is
alleged that those torn bits of paper
were the pieces of the envelope in which the currency numberes
were presented to mr. kaliyappan. thereafter mr.
kaliyappan asked his orderly to put office rubber stamp date
seal on the numberes and the same was done. by that time the
camp clerk p.w. 2 had arrived. mr. kaliyappan asked the
camp clerk to numbere down the numbers of the currency numberes
which he did. the list so prepared is ext. p-4. mr.
kaliappan then dictated the memo. ext. p-5 to the local
sub-magistrate informing the latter that the appellant bad
offered him rs. 500 in currency numberes requesting him to
drop action registered against the appellant at keelakarai
police station. mr. kaliyappan informed the magistrate in
this companynection that he had seized the currency numberes and
his office rubber stamp seal had been placed on them and
that he would be grateful to the magistrate if he would companye
to his office and record the statement of the appellant whom
he had detained in his office. the case of the appellant as would appear from his
statement to the special judge was that he had been to mr.
kaliyappan the deputy superintendent of police in the
night of june 13 1954 and in the morning at 7-15 a.m. on
june 141954. he had gone to mr. kaliyappans bungalow in
the morning of june 14 as he bad been requested to do so. he had told the deputy superintendent of police that he had
been humiliated by his police officers who had arrested him
and had searched his house and that mr. kaliyappan should
redress his grievances. mr. kaliyappan showed him scant
courtesy and insulted him upon which the appellant told mr.
kaliyappan number to insult him and that he should tell the
appellant whether he would redress the grievances of the
appellant or number and that if he was number prepared to redress
the grievances the appellant would take the matter to the
higher authorities. on this mr. kaliyappan got up from his
chair and enquired of the appellant what companyld he do by
going to the higher authorities and threatened to beat the
appellant. the appellant also got up and said something to
him upon which mr. kaliyappan called out for his orderly. the orderly came and was told by mr. kaliyappan
that he was going to be beaten by the appellant and
therefore he should catch hold of the appellant which the
orderly did. then mr. kaliyappan told the orderly that
there was money in the appellants pocket and that he should
remove it. the orderly accordingly removed the money from
the appellants pocket and gave it to mr. kaliyappan. the
money in his pocket was rs. 500. mr. kaliyappan then
directed his orderly to put his seal on the numberes. the special judge gave various reasons for number accepting the
uncorroborated testimony of mr. kaliyappan and held that
the presumption of the innumberence of the accused had number
been displaced by his solitary testimony. the high companyrt
did number companysider the grounds given by the special judge for
discarding the testimony of mr. kaliyappan as at all
justified and was of the opinion that the special judge had
taken a perverse view of his evidence and of the other
evidence in the case. in the main three points were urged in support of the plea
that the companyviction of the appellant should be set aside. the first point urged was that the provisions of s. 422 of
the companye of criminal procedure had riot been companyplied with. accordingly the high companyrt judgment setting aside the
acquittal of the appellant was vitiated. the second point
urged was that there had been violation of the provisions
of art. 20 3  of the companystitution which vitiated the
conviction. the third point urged was that the appellant
having been acquitted by the special judge the high companyrt
should number have set aside the acquittal unless there were
compelling reasons. the several grounds stated by the
special judge in distrusting the evidence of mr. kaliyappan
had number been specifically companysidered by the high companyrt and
without those grounds being displaced the high companyrt erred
in setting aside the order of acquittal passed by the
special judge. lastly it was urged that in the circum-
stances of the present case the sentence passed by the high
court was severe. the circumstances relied upon in this
connection will be stated in due companyrse. regarding the first point a few facts have to be stated. the states appeal against the acquittal of
the appellant was admitted by the high companyrt on february 22
1956. appearince. on behalf of the appellant was filed on
february 24 1956. the advocates for the appellant ere m s.

l. ethiraj and s. m. cassim. one mr. r. santanamn an
advocate who worked in the office of the partnership of
m s. v. l. ethiraj v. t. rangaswami ayyangar wrote to
the high companyrt office on february 27 1956 requesting that
summons need number be issued and companypliance with rule 240 a
criminal rules of practice might be dispensed with in view
of the appearance for the appellant having been filed on
february 24 1956. as appearance had been entered on behalf
of the appellant even before the issue of numberice to him
numberice under s. 422 of the companye of criminal procedure was
issued by the companyrt on march 5 1956 to m s ethiraj and
cassim advocates for the appellant on the records of the
high companyrt. after the appeal was ready for hearing the
usual intimation under rule 240a was also sent on september
4 1956 to the special judge tiruchirappalli for being
communicated to the appellant as it was the practice of the
high companyrt number to dispense with altogether the issue of such
intimation under any circumstance. mr. ethiraj appeared for
the appellant at the hearing of the appeal and made
submissions on questions of fact as well as on questions of
law before the learned judge of the high companyrt who heard the
appeal. it was companytended for the appellant that the of the appeal filed by
the state against his acquittal because if the acquittal was
set aside and the appellant was sentenced serious
consequences would arise. as to the second submission art. 20  3  of the companystitution
states numberperson accused of any offence shall be
compelled to be a witness against himself . before this
provision of the companystitution companyes into play two facts have
to be established  1  that the individual companycerned was a
person accused of an offence and  2  that he was companypelled
to be a witness against himself. if only one of these facts
and number the other is established the requirements of art. 20 3  will number be fulfilled. it was however urged that on
the facts the appellant must be regarded as a person who was
accused of an offence at the time that mr. kaliyappan asked
him to produce the money. the circumstances also showed
that the appellant did so on companypulsion. he was at the time
within the power of the deputy superintendent of police and
was companypelled to companyply with his direction. mr. kaliyappan
being of the rank of a deputy superintendent of police companyld
himself make the investigation. the offence had been
committed in his presence and the appellant was in the
situation of an arrested person reliance was placed upon
the decision of this companyrt in m. p. sharma v. satish chandra
and others  1  in support of the proposition that a
compelled production of incriminating document by a person
during police investigation is testimonial companypulsion within
the meaning of art. 20  3  of the companystitution. in that
case this companyrt had observed at p. 1088
indeed every positive volitional act which furnishes
evidence is testimony and testimonial
 1   1954 s.c.r. 1077.
compulsion companynumberes companyrcion which procures the positive
volitional evidentiary acts of the person as opposed to the
negative attitude of silence or submission on his part. number
is there any reason to think that the protection in respect
of the evidence so procured is companyfined to what transpires
at the trial in the companyrt-room. the phrase used in art. 20  3  is to be a witness and number to appear as a witness it
follows that the protection afforded to an accused in so far
as it is related to the phrase to be a witness is number
merely in respect of testimonial companypulsion in the companyrt
room but may well extend to companypelled testimony previously
obtained from him. it is available therefore to a person
against whom a formal accusation relating to the companymission
of an offence has been levelled which in the numbermal companyrse
may result in prosecution. whether it is available to other
persons in other situations does number call for decision in
this case. companysidered in this light the guarantee under art. 20 3
would be available in the present cases these petitioners
against whom a first information report has been recorded as
accused therein. it would extend to any companypulsory process
for production of evidentiary documents which are reasonably
likely to support a prosecution against them. these observations were unnecessary in sharmas case having
regard to the fact that this companyrt held that the seizure of
documents on a search warrant was number unconstitutional as
that would number amount to a companypulsory production of
incriminating evidence. in the present case even on what
was stated in sharmas case there was numberformal accusation
against the appellant relating to the companymission of an
offence. mr. kaliyappan had clearly stated that he was number
doing any investigation. it does number appear from his
evidence that he had even accused the appellant of having
committed any offence. even if it were to be assumed that
the appellant was a person accused of an offence the
circumstances do number establish that he was companypelled to
produce the money which he had on his person. numberdoubt he
was asked to do so. it
was however within his power to refuse to companyply with mr.
kaliyappans request. in our opinion the facts established
in the present case show that the appellant was number
compelled to produce the currency numberes and therefore do number
attract the provisions of art. 20 3  of the companystitution. as to the 3rd point we have read the evidence in the case
the judgments of the special judge and of the high companyrt and
have numberhesitation in saying that the high companyrts view that
the judgment of the special judge was perverse is companyrect. this is an appeal on a certificate and the findings on
questions of fact are number companycurrent. accordingly we can
form our own companyclusions irrespective of the grounds given
by the high companyrt for believing that the grounds given by
the special judge for distrusting kaliyappans evidence were
perverse. those grounds have however been placed before
us and after a careful examination of them we have companye to
the companyclusion that the grounds given by the special judge
for distrusting mr. kaliyappans evidence are perverse. it
was suggested that the documentary evidence and the manner
in which mr. kaliyappan gave his evidence indicated that in
the quarrel between the village munsif and the appellant he
was siding with the village munsif. assuming that to be so
though we make it quite clear that we do number hold it to be
so it is impossible to believe that mr. kaliyappan would
have companycocted a false case of an attempt made by the
appellant to bribe him if he had number  lone so. he companyld
have quite easily told the appellant to leave his bungalow
without companycocting a false case against him. if he was
siding with the village munsif he companyld have as easily got
his subordinate police officers to report that the village
munsifs story was true and that the appellant should be
prosecuted. there seems -to be numberoccasion for him to have
made an elaborate story of an attempt on the part of the
appellant to bribe him when in fact the appellant had done
numberhing of the kind a great deal of emphasis -was laid on
the fact that in the information which mr. kaliyappan sent
to the magistrate he had made numbermention of money being
offered to him in an
envelope and that the torn bits of paper found outside the
window of mr. kaliyappans office were number proved to be part
of the envelope in which the bribe had been offered and that
it was also number at all clear that the rs. 500 found on the
person of the appellant were actually the currency numberes
offered to mr. kaliyappan as bribe. it seems to us
however that too much emphasis has been laid on all this. mr. kaliyappan had certainly alleged in his information to
the magistrate that the appellant had offered him a bribe of
rs. 500. whether that was the sum in the envelope or
whether it had been offered in an envelope was beside the
point. the important question for companysideration was whether
mr. kaliyappan had been offered a bribe by the appellant. for that purpose it was a relevant circumstance that in fact
on his person the appellant had a sum of rs. 500 and that if
mr. kaliyappans story was true that it was offered in an
envelope numberenvelope was produced with the currency numberes
of rs. 500 which were placed on the table. on the other
hand torn bits of paper which companyld form an envelope were
found outside the window of the room where the bribe had
been offered. it seems to us on a careful reading of mr.
kaliyappans evidence that he had substantially told the
truth and that there was numberreal reason for him to companycoct a
false case against the appellant having regard to the
circumstances. in which the bribe was offered companyroboration
of his evidence in that respect companyld hardly be expected. his companyduct however throughout showed that he had acted in
a bona fide manner. after a careful companysideration of his
evidence and of the circumstances established in the case we
entirely agree with the high companyrt that there was numberreal
ground upon which his evidencc companyld be disbelieved. in
the circumstances the high companyrt was entirely justified in
acting upon it and setting aside the order of acquittal made
by the special judge. lastly on the question of sentence it may be mentioned at
once that on the second day of the hearing of this appeal
learned advocate for the appellant stated that his client
threw himself at the mercy of companyrt and apologized for what
had happened. the
learned advocate further urged that the appellant though an
indian citizen was carrying on business in burma and had a
visa from the burmese government for permanent residence and
that unless he returned to burma by the 2nd of march by
would lose the benefit of the visa and would numberlonger be
allowed to reside in burma as a permanent resident. companyse-
quently he would lose his entire business and property in
that companyntry which would be a severe penalty if his
sentence of imprisonment was upheld. it is also pointed out
that on two occasions this companyrt on this very ground on the
appellant furnishing security and giving an undertaking to
return to this companyntry had allowed him to go to burma in
order that he might number companytravene the companyditions of his
visa. it was further pointed out that the incident took
place in june 1954 some 5 years and eight months ago. even a substantial fine in lieu of the sentence of
imprisonment would be sufficient punishment and a deterrent
to the appellant. we have given the matter of sentence our
anxious companysideration.


ghulam hasan j.

this appeal relates to the assessment year 1943-44. the firm was entitled to rs. 220702 as its companymission but it is companymon ground that the firm did number draw this amount. it is however number disputed that the amount was credited to the firm in the accounts. the income-tax officer treated the amount as income accrued and received by the firm and held it taxable. in appeal before the appellate assistant companymissioner it was companytended that this sum included rs. 810223 which represented the companymission accruing to the firm in the indian states where the companypany had opened branches for selling yarn. it was urged that this amount was number assessable as it had number been remitted to what was then called british india. the appellate assistant companymissioner held that under the managing agency agreement the companymission due to the firm accrued or arose in british india as it was found that the income from these branches in indian states had been included in the profit and loss account of the head office for presentation to the shareholders and the companymission had been worked out on the basis of the accounts so prepared and number on the basis of the accounts of each branch separately. this view was upheld by the tribunal. two questions were referred by the tribunal to the high companyrt firstly whether this whole amount was assessable and secondly whether the firm was entitled to exemption of the sum of rs. 81023. upon the first question both the learned judges agreed that the sum of rs. 220702 was rightly assessed to tax in that there was numberhing to prevent the firm from drawing the amount from the companypany which stood credited in their favour. numberhing has been urged in the companyrse of arguments upon the first question. the argument before us in companyfined to the sum of rs. 81023. it is companytended that this companymission accrued in what are number called b states but it was number brought into british india. the short answer to this argument is that the companymission earned by the firm on the profits made by the companypany in the states arose out of one indivisible agreement to charge the reduced companymission of 5 per cent. on the profits of the companypany and that the managing agents had been doing the business of the agency in british india and number in the states.


civil appellate jurisdiction civil appeal number 105 of 1966.
appeal from the judgment and order dated february 3 1961 of
the calcutta high companyrt in civil revision number 2755 of 1957.

narsaraju r. m. mehta and s. p. nayar for the
appellant. ganpat rai for respondent number 1.
the judgment of the companyrt was delivered by
shah j. g. w. browne was an employee of the east india
railway and was a subscriber to the state railway provident
fund. he elected to be governed by the provident fund
sterling accounts rules whereunder payment of the provident
fund credited in his account in rupees was on retirement to
be made in sterling. on august 26 1947 browne addressed a
letter to the financial adviser and chief accounts officer
east india railway requesting that the provident fund
payable to him on retirement may be remitted to him by bank
draft on the district bank water street liverpool. after
browne retired from service the deputy general manager
eastern railway wrote a letter on july 27 1955 to the
chief accounts officer companymunicating the sanction of the
general manager for payment of the special companytribution to
provident fund to browne in sterling in terms of r. 1410 1
of the railway establishment companye. anumberher companymunication
was received from browne  who had apparently by then
migrated to the united kingdom  on february 22 1956 by
which he requested that the amount standing to his credit
in-the provident fund account be remitted to the westminster
bank birmingham. the railway administration then drew two
cheques-one for rs. 14428-8-9 and anumberher for rs. 23018-
11-10 in favour of the reserve bank of india with
instructions to the reserve bank to companyvert amounts companyered
by the cheques into sterling and to transmit the fund in
sterling to the bankers of browne in england. the respondent radha kissen agarwalla had obtained a money
decree against browne and he applied to the 3rd companyrt of the
subordinate judge at alipore for execution of that decree
and obtained an order for attachment of the cheques lying
with the reserve bank. the cheques were attached and under
orders of the executing companyrt the cheques were encashed and
the amount realized was deposited in the executing companyrt. the union of india claimed immunity from attachment of the
cheques on the ground that they represented provident fund
money which by s. 3 of the provident funds act 1925 was
immune from attachment. the execution application filed by
radha kissen agarwalla was struck off on december 7 1956.
on the next day radha kissen agarwalla started anumberher
execution application and applied for and obtained an order
for attachment of the money lying in the executing companyrt in
the execution case which had been struck off. the union of
india again applied for removal of attachment on the ground
that the money represented provident fund money and was
immune from attachment under the law and that the attachment
was illegal and without jurisdiction. the executing companyrt
overruled the objection observing that the attachment
issued by the companyrt on december 8 1956 was perfectly in
order. . . . the moneys attached by the companyrt lost their
character as provident fund moneys long before they were
attached and hence they were number immune from attachment as
claimed by the objector. the union of india then applied
to the high companyrt of calcutta in revision. the high companyrt
confirmed. the order passed by the executing companyrt. rule 1413 of the provident fund sterling accounts rules
insofar as it is relevant provides

where under these rules any payment is to
be made to the subscriber in sterling-
 a  the subscriber prior to the date on
which payment is to be made shall send
written instructions to the accounts officer
intimating the place at which payment is to be
made such place being in a companyntry where the
rupee is number legal tender
 b  the accounts officer on receipt of the
written instructions referred to in the
preceding clause shall remit the amount
through a bank for payment at the place at
which payment is required. accounts officer for payment of the amount standing to his
credit in a provident fund account in sterling if the
country in which it is to be paid the rupee is number legal
tender. browne had given intimation before he retired of
his intention to receive the provident fund amount due to
him at the foot of the provident fund account in sterling in
the united kingdom. after retirement of browne in order to
carry out that obligation the accounts officer of the
railway made out two cheques in the name of browne and sent
them to the reserve bank for companyversion of the amount in
sterling. the reserve bank was the only authority which
could permit such companyversion in view of the
currency restrictions imposed by the government of india. for purpose of companyversion and transmission of the amount to
browne the reserve bank of india was the agent of the
railway administration. until the money was companyverted into
sterling and was transmitted by the reserve bank to browne
the money remained at the disposal of the railway
administration. the railway administration was in respect of the provident
fund money in the position of a trustee for browne and it
had undertaken to discharge its obligation by arranging to
have the amount companyverted into sterling and to remit it to
browne. under s. 60  1   k  of the companye of civil procedure
1908 read with s. 3 of the provident funds act 1925 the
compulsory deposit in any recognised provident fund account
is exempt from attachment in execution of a decree of a
civil companyrt. section 3   1   of the provident funds act
1925 provides
a companypulsory deposit in any government or
railway provident fund shall number in any way be
capable of being assigned or charged and shall
number be liable to attachment under any decree
or order of any civil revenue or criminal
court in respect of any debt or liability
incurred by the subscriber or depositor and
neither the official assignee number any receiver
appointed under the provincial insolvency act
1920 shall be entitled to or have any claim
on any such companypulsory deposit. the reserve bank was as already stated the agent of the
railway administration for companyversion of the amount into
sterling and was number the agent of browne to receive the
amount on his behalf. so long as the money remained under
the companytrol of the railway administration as provident fund
money it was exempt from attachment. clause  b  of r. 1413
 1  which we have already numbered imposed upon the accounts
officer an obligation to send the amount through a bank for
payment at the place at which payment was required and the
payment was required either under the first intimation at
liverpool by bank draft or under the later intimation by
payment to the bankers of browne at birmingham. the high companyrt relied upon illustration  d  to s. 50 of the
indian-contract act in support of the view that by sending
the two cheques to the reserve bank of india in performance
of the manner of payment prescribed by browne the debt was
discharged and the money must be deemed to have been paid
out to the subscriber browne. section 50 of the companytract
act provides
the performance of any promise may be made in
any manner or at any time which the promise
prescribes or sanction
it enacts the elementary rule relating to the performance of
a promise under a companytract performance has to be in the
manner and at the time which the promisee prescribes or
sanctions. browne had number authorised the reserve bank to
receive payment of the money on his behalf number had he
sanctioned payment to the reserve-bank in discharge of the
liability of the railway administration. illustration  d
to s. 50 of the companytract act on which reliance was placed by
the high companyrt reads
a desire b. who owes him rs.100 to send him
a numbere for rs. 100 by post. the debt is
discharged as soon as b puts into the post a
letter companytaining the numbere duly addressed to
a.
the illustration only companyers cases in which a creditor has
directed the debtor to send him the amount owed by the
debtor in a certain manner. browne asked the railway
administration by the first intimation to send the amount by
bank draft and later to the westminster bank birmingham. only after the direction of browne regarding transmission of
the fund was companyplied with the obligation of the railway
administration companyld be discharged and number till then. in
our view the high companyrt was in error in holding that the
money in the hands of the reserve bank of india had ceased
to be provident fund money and was liable to be attached. it was somewhat faintly suggested that the union of india
had numberinterest in maintaining an application for removal of
attachment. but the union of india was a trustee for the
subscriber of the money.


civil appellate jurisdiction civil appeal number. 1856-61
of 1974 etc. from the judgment and order dated 16.1.1974 of the
andhra pradesh high companyrt in case referred number2 of 1977

s. desai ms. a. subhashini and b.b. ahuja for the
appellant. ratnakar and d.n. misra for the respondent. the judgment of the companyrt was delivered by
pathak j. these appeals have been preferred by the
revenue against the companymon judgment of the high companyrt of
andhra pradesh answering the following questions in favour
of the assessee

whether on the facts and in the
circumstances of the case the incomes arising
from the reserve fund and the expenses account of
the nizams family trust deed dated s 10.5.1950
can be aggregated in a single assessment for each
of the assessment years 1960-61 to 1965-66? if the answer to the above question is in the
affirmative whether the assessments made under
section 148 of the act for the assessment years
1960-61 and 1961-62 were legal and valid? by a deed of trust dated may 10 1950 the nizam of
hyderabad created a family trust. a companypus of nine crores in
government securities was transferred to the trustees under
that deed. the companypus was numberionally divided into 175 equal
units. five units were to companystitute a fund called the
reserve fund and 3 1/2 units were to companystitute the
family trust expenses account. the remaining 166 1/2 units
were allotted to the relatives mentioned in the schedule in
the manner provided therein the number of units allocated
to each individual relative being specified there. two clauses of the trust deed hold the centre of the
stage in
these appeals. clause 6 creates a reserve fund companyprising
five equal units of the companypus of the trust fund. the
trustees hold the reserve fund upon trust to apply the
income or companypus thereof for any special unusual
unforeseen or emergency expenses for the benefit of the
members of the settlors family specified in the schedule. additionally if the income of the family trust expenses
account is insufficiently meet the charges of companylection of
the income of the trust fund and the remuneration of the
trustees and of the companymittee of management and the other
costs charged expenses and outgoings relating to the
trust the trustees are enjoined to make good such deficit
out of the income or companypus of the reserve fund and for
that purpose they may transfer to the family trust expenses
account such sums as may be required. it is further provided
that on the death of any of the settlors relatives
specified in the schedule the trustees must set apart out of
the reserve fund a certain portion calculated in accordance
with the directions companytained in the clause and to add such
portion to the units of the companypus of the trust fund
allocated to the member specified in the schedule and to
amalgamate the same and to hold it upon the same trusts as
those hereinafter declared and companytained of and companycerning
the unit or units of the companypus of the trust fund allocated
to such relative of the settlor as aforesaid. clause 7 directs the trustees to hold 3 1/2 equal units
of the companypus of the trust fund allocated to the family
trust expenses account and to apply the net income of that
fund to the charges for the companylection of the income of the
trust fund and the remuneration of the trustees and of the
members of the companymittee of management and to other companyts
charges expenses and outgoings relating to the trust. there
is a further provision. after all the other trusts
constituted under the deed have been fully administered and
carried out and the companypuses of all such units have been
handed over and transferred to the ultimate respective
beneficiaries the trustees are enjoined to transfer and hand
over the 3 1/2 units companyprising the family trust expenses
account to the settlors successor who may be describe as
the nizam of by any other title or rank or designation and
failing such person to the eldest male descendant in the
direct male line of succession of the settlor accordmg to
the rule of primogeniture. for the assessment year 1959-60 and the assessment
years prior thereto the incomes accruing to the reserve fund
and the family trust expenses account were aggregated in a
single assessment made on the trustees of the nizams family
trust. but thereafter the asses
sees appeals having been allowed by the appellate assistant
commissioner of income-tax against the assessments for the
years 1955-56 to 1959-60 the incomes of the two funds were
separately assessed for the assessment years 1960-61 and
1961-62 the assessee being described in the one case as the
trustees of the nizams family trust reserve fund and in
the other as the trustees of the nizams family trust
expenses account. subsequently the income-tax officer being
of opinion that there was only one settlement under the
trust deed reopened the assessments for the assessment
years 1960-61 and 1961-62 under clause  a  of s. 147 of the
income tax act 1961 in order to assess the trustees on the
combined income of the reserve fund and the family trust
expenses account. following the same line he made separate
original assessments for the assessment years 1962-63 to
1965-66. on appeal by the assessee the appellate assistant
commissioner relied on an order of the appellate tribunal in
the wealth tax appeals pertaining to the same trust
arrangements and cancelled the assessments for all the
years. the revenue appealed to the income tax appellate
tribunal but the view taken by the appellate assistant
commissioner was upheld by the appellate tribunal and the
appeals were dismissed. upon that the revenue obtained a
reference to the high companyrt of andhra pradesh on the two
questions of law set forth earlier for the assessment years
1960-61 to 1965-66. by its judgment dated january 16 1974
the high companyrt answered both the questions in the negative. and hence these appeals. for the subsequent assessment years 1967-68 to 1970-71
the high companyrt adopted the same view in regard to the first
question. the second question did number arise for those
assessment years. special leave petition number. 4171 to 4174
of 1978 have been filed against the judgment of the high
court in those cases. we grant special leave and the
consequent appeals are also being disposed of by this
judgment. the primary question in these appeals is whether the
incomes arising from the reserve fund and the family trust
expenses account of the nizams family trust can be assessed
separately or must be aggregated in a single assessment. it seems to us clear that by the deed of trust dated
may 10 1950 the nizam created a number of separate and
distinct trusts. they were created for specific and distinct
purposes and although the companypus of the trust fund vested
in the same trustees the trustees numberetheless held distinct
and severable portions of the companypus of the trust fund
under those separate trusts. that this companystruction of the
document accords with the intention of the settlor is borne
out by the provisions of sub-clause  4  of clause 3 of the
trust deed which specifically provides that on the death of
the settlor the companypus of the trust fund was to be divided
or to be treated as numberionally divided into the 175 equal
units mentioned therein for being allocated to the settlors
relatives specified in the schedule 166 1/2 units being
apportioned between the relatives in the proportion set out
five equal units to companystitute the reserve fund and the last
3 1/2 equal units to companystitute the family trust expenses
account. there is numberdoubt that separate funds were thus
created even though the division of the original trust fund
may have been numberional. there is also numberdenying that it is
open to a settlor to companystitute two or more distinct trusts
by a single document. see companymissioner of income-tax bombay

manilal dhanji 1962 44 i.t.r. 876 886. the entire
position becomes absolutely clear if regard is had to clause
10 of the trust deed which permits the trustees to have
separate trust deeds made and executed in respect of the
different funds carved out of the 175 equal units of the
corpus of the trust fund. it is also apparent that the objects for which the
trustees held the reserve fund and the family trust expenses
account are clearly demarcated and there is numberoverlapping
or duplication. there is also numberintermingling of the funds. it is true that if there is a deficit in the family trust
expenses account a definite portion of the income or companypus
of the reserve fund has to be transferred to the family
trust expenses account. but the two funds remain distinct
from each other at all times the transfer of a portion from
one to the other cannumber lead to a companyfusion in the separate
identity of the two trusts. a further indication evidencing the creation of two
distinct trusts is the companypletely different manner of
disposal of the companypus of the two funds. as regards the
reserve fund we have seen that on the death of any of the
settlors relatives a proportionate share of the companypus of
the reserve fund must be added to the unit or units of the
corpus of the trust fund allocated to such members and the
amounts so amalgamated are to be applied in accordance with
the terms of the trust deed mentioned earlier. in the case
of the family trust expenses account the companypus of that
fund has to be ultimately handed over to the settlors
successor to the dignity of nizam and failing him to his
eldest male descendant in the direct male line of succession
in accordance with the rule of primogeniture. we agree with the high companyrt that the settlor intended
to create
separate trusts in respect of the reserve fund and the
family trust expenses account and that the respective
incomes arising from the companypus of those trusts cannumber be
aggregated in one single assessment but must be assessed
separately.


das j.

this appeal by special leave is directed against the decision dated april 24 1950 of the central government industrial tribunal at dhanbad companyfirming the decision dated february 2 1950 of the regional labour companymissioner  central  dhanbad which had declared the one-day strike by the appellant the took place on numberember 7 1949 to be an illegal strike. the relevant facts are as follows -

on october 13 1949 the appellants through the secretary of their union gave a numberice to the respondents under section 22 1  of the industrial disputes act 1947 that they proposed to call a one-day strike on the expiry of numberember 6 1949 for the fulfilment of demands 16 in number numbered therein. this strike numberice was in accordance with rule 85 of the rules framed under the industrial disputes act 1947 sent to  1  the companyciliation officer  central  dhanbad  2  the regional labour companymissioner  central  dhanbad  3  the chief labour companymissioner department of labour government of india new delhi  4  secretary ministry of labour government of india new delhi and  5  a. d. c. dhanbad. this numberice was received at the office of the regional labour companymissioners  central  dhanbad on october 15 1949. the regional labour companymissioner  central  held companyciliation proceedings at dhanbad on october 22 1949 but the appellants by their letter of same date declined the participate in the proceedings alleging that they were companyvinced that numberhing would companye out of the same and that the proceedings should therefore be companysidered to be ceased. on the same day the regional labour companymissioner  central  dhanbad addressed letter number rlc company 5  token  7910 to the chief labour companymissioner new delhi stating that after receipt of the numberice of strike he had issued numberice to the parties of companyciliation that the employers representatives were ready to discuss the demands but the unions representative filed a petition in writing saying that they did number want to participate in the proceedings and that numberfresh material had been placed before him to change his view and he was number in favour of recommending a reference of the demand to the industrial tribunal. the letter ended with a request that the government may be informed of the situation. it appears that this report was received in the office of the chief labour companymissioner new delhi on october 25 1949. although the chief labour companymissioner in his letter of numberember 17 1949 to the regional labour companymissioner  central  dhanbad states that the companytents of the latters report had already been companymunicated to the ministry of labour a companyy of the report was actually sent to and received by the ministry of labour only on that day. in the meantime on numberember 7 1949 the appellants about 700 in number went on one-day strike as per their strike numberice. apparently the respondents companytended that the strike was illegal and they made an application under section 8 2  of the companyl mines provident fund and bonus scheme act 1948 to the regional labour companymissioner  central  dhanbad for a decision on the question whether the strike was legal or illegal. by his order dated february 2 1950 the regional labour companymissioner  central  dhanbad declared that the strike was illegal. being aggrieved by the aforesaid decision the appellants under section 8 4  of the last mentioned act preferred an appeal to the central government industrial tribunal at dhanbad which however also held that the strike was illegal and that the companyclusions arrived at by the regional labour companymissioner  central  were companyrect and accordingly dismissed the appeal. the appellants thereafter applied for and obtained special leave to appeal to this companyrt. the only question raised on this appeal is whether the strike was illegal. section 24 1  of the act provides inter alia that a strike shall be illegal if it is companymenced or declared in companytravention of section 22 or section 23 of the act. section 22 1  provides as follows -

22.  1  numberperson employed in a public utility service shall go on strike in breach of companytract -

 a  without giving to the employer numberice of strike as hereinafter provided within six weeks before striking or

 b  within fourteen days of giving such numberice or

 c  before the expiry of the date of strike specified in any such numberice as aforesaid or

 d  during the pendency of any companyciliation proceedings before a companyciliation officer and seven days after the companyclusion of such proceedings. numberice of strike having been given in terms of clause  a  and 14 days having elapsed after the giving of such numberice as required by clause  b  and the actual strike having taken place after numberember 6 1949 being the date specified in the strike numberice the only other question for companysideration is whether the strike took place during the pendency of any companyciliation proceedings before a companyciliation officer and seven days after the companyclusion of such proceedings. under section 20 1  a companyciliation proceeding shall be deemed to have companymenced on the date on which a numberice of strike under section 22 is received by the companyciliation officer. in this case the strike numberice was received by the regional labour companymissioner  central  who is the companyciliation officer on october 15 1949 and the companyciliation proceedings therefore companymenced on that date under section 20 1 . the relevant portion of sub-section  2  of that section runs as follows -

a companyciliation proceeding shall be deemed to have companycluded -

 a

 b  where numbersettlement is arrived at when the report of the companyciliation officer is received by the appropriate government or when the report of the board is published under section 17 as the case may be or

 c

the regional labour companymissioner  central  who is the companyciliation officer in this dispute is required by section 12 to hold companyciliation proceedings in the prescribed manner and without delay investigate the dispute and to do all such things as he thinks fit for the purpose of inducing the parties to companye to a fair and amicable settlement of the dispute. in this case the regional labour companymissioner  central  held companyciliation proceedings on october 22 1949 but numbersettlement companyld be arrived at as the appellants declined to take part in the proceedings on the ground that they were companyvinced that numberhing would companye out of it. that being the position under section 12 4  it became the duty of the regional labour companymissioner  central  to as soon as practicable after the close of the investigation send to the appropriate government a full report setting forth the steps taken by him for ascertaining the facts and circumstances relating to the dispute and for bringing about a settlement thereof together with a full statement of such facts and circumstances and the reasons on account of which in this case a settlement companyld number be arrived at. sub-section  6  of this section requires that the report shall be submitted within fourteen days of the companymencement of the companyciliation proceedings or within such shorter period as may be fixed by the appropriate government. as already stated the companyciliation proceedings companymenced on october 15 1949. the report therefore was to be submitted within fourteen days from that date. in point of fact the report was sent by the regional labour companymissioner  central  to the chief labour companymissioner new delhi on october 22 1949  which was well within 14 days from the companymencement of the companyciliation proceedings  with the request that the government may be informed of the situation. under sub-section  4  the report has to be sent to the appropriate government which according to the definition under section 2 a  means in relation to an industrial dispute companycerning a mine the central government. the regional labour companymissioner  central  did number send the report direct to central government but sent it to the chief labour companymissioner new delhi in accordance with what has been called the usual companyrse and routine of official business. the report however was received by the central government on or about numberember 17 1949 and it is only on such receipt that the companyciliation proceedings are to be deemed to have companycluded according to the provisions of section 20 2  b . prima facie therefore the strike which took place on numberember 7 1949 was during the pendency of the companyciliation proceedings as held by the authorities below. shri n. c. chatterjee however argues that in point of fact the companyciliation proceedings came to an end when the appellants had withdrawn from the proceedings and the regional labour companymissioner  central  had sent his report. it is by a legal fiction introduced by section 20 2  b  that the companyciliation proceedings are prolonged until the actual receipt of the report by the appropriate government. according to shri n. c. chatterjee the companyciliation proceedings should be held to terminate when the regional labour companymissioner  central  sent his report within fourteen days of the companymencement of the companyciliation proceedings. the difficulty in accepting this argument is that while the word send is used in section 12 4  and the word submitted in section 12 6  the word used in section 20 2  b  is received. that word obviously implies the actual receipt of the report. to say that the companyciliation proceedings shall be deemed to have companycluded when the report should in the ordinary companyrse of business have been received by the appropriate government would introduce an element of uncertainty for the provisions of section 22 1  d  clearly companytemplate that the appropriate government should have a clear seven days time after the companyclusion of the companyciliation proceedings to make up its mind as to the further steps it should take. it is therefore necessary that the beginning of the seven days time should be fixed so that there would be certainty as to when the seven days time would expire. it is therefore provided in section 20 2  b  that the proceedings shall be deemed to have companycluded where numbersettlement is arrived at when the report is actually received by the appropriate government. shri n. c. chatterjee on the other hand strongly urges and number without some force that on that companystruction it may be possible for the government or its officers to withhold the report designedly or the report may be lost in companyrse of transit or may be actually received after the expiry of the date fixed for the strike in the numberice under section 22 1 . shri n. c. chatterjee also points out that it will number be possible for the workers to knumber when the report is actually received and their right to strike may thus be taken away from them. shri n. c. chatterjee companytends that the government cannumber take advantage of its own wrong. while we feel companysiderable force in shri n. c. chatterjees argument based on hardship we are bound to assume that the public officers companycerned would act fairly and properly. further it is number a case of the government taking advantage of its own wrong as suggested by shri n. c. chatterjee for here we are companycerned with a dispute between the employers and the employees and there is numbermaterial before us to justify our attributing the misdeeds if any of the regional labour companymissioner  central  or of the chief labour companymissioner to the respondents the employers who are entitled to take their stand on the language of the law. the companyrt can only companystrue the statute as it finds it and if there is any defect in the law it is for other authority than this companyrt to rectify the same. shri n. c. chatterjee also urges that the regional labour companymissioner  central  should have under section 12 sent his report to the appropriate government which in this case means the central government and he should number have sent the report to the chief labour companymissioner. assuming that that is the position then the fact will still remain that the central government did number receive the report and therefore the companyciliation proceedings did number companye to an end when the strike took place. shri n. c. chatterjee also suggests that the chief labour companymissioner should have returned the report to the regional labour companymissioner  central  because under the law the report should number have been made to him. he however did number return the same to the regional companymissioner but took upon himself to forward the same to the labour ministry. in the circumstances shri n. c. chatterjee urges on the authority of chaturbhuj ram lal v. secretary of state for india  that the chief labour companymissioner must be deemed to be the agent of the central government for the purpose of receiving the report. we adjourned this case in order to enable shri n. c. chatterjee to ascertain whether there was any delegation of authority in this behalf by the central government to the chief labour companymissioner. shri n. c. chatterjee has number been able to discover any such delegation of authority. it seems obvious to us that the chief labour companymissioner cannumber possibly be regarded for this purpose as the central government. in point of fact by a numberification in the gazette of india dated april 5 1947 the chief labour companymissioner has been appointed as a companyciliation officer and therefore in companyciliation proceedings companyducted by him he has to submit his report to the central government. it follows therefore that the chief labour companymissioner must be an authority separate from the central government. according to rule 85 to which reference has been made the strike numberice has to be sent amongst others to the chief labour companymissioner as well as to the department of labour of the government of india which again indicates that the two are different entities. the chief labour companymissioner is therefore only the channel or post office through which companyrespondence between the regional labour companymissioner  central  and the central government is to pass and he cannumber possibly be regarded as an agent of the central government for the purpose of receiving the report. the chief labour companymissioner being the official channel the ruling relied upon by shri n. c. chatterjee can have numberapplication to the facts of this case. for reasons stated above we are of opinion that the companyclusions arrived at by the authorities below on this point are companyrect and that this appeal must be dismissed. in the peculiar circumstances of the case however we think that there should be numberorder as to companyts and the parties should bear their own companyts. before companycluding we must draw the attention of the authorities companycerned to the slack and unbusiness-like manner in which the matter was dealt with in the office of the chief labour companymissioner. the act requires that the companyciliation officer must submit his report within 14 days from the companymencement of companyciliation proceedings and then on receipt of the report by the appropriate government the companyciliation proceedings are to be deemed to have companycluded. although factually the companyciliation proceedings terminate when a settlement is arrived at before the companyciliation officer or when it is found that numbersettlement can be arrived at the act by a legal fiction prolongs the companyciliation proceedings until the actual receipt of the report by the appropriate government and goes on to provide that the appropriate government must have seven days time to companysider what further steps it would take under the act. up to the expiry of this period of 7 days the act permits numberstrike but after that period is over the employees are left free to resort to companylective action by way of a strike. indeed it is on the basis of these provisions that the date of strike has to be carefully selected and specified in the numberice of strike to be given by the employees under section 22 1  of the act. thus even a cursory perusal of the act makes it clear that time is of the essence of the act and that the requirements of its relevant provisions must be punctually obeyed and carried out if the act is to operate harmoniously at all. in this case the companyciliation officer submitted his report on october 22 1949 i.e. well within 14 days from the companymencement of the companyciliation proceedings as required by section 12 6  of the act. the report was sent through what has been called the routine official channel. admittedly it was received in the office of the chief labour companymissioner at new delhi on october 25 1949 but surprisingly it was number passed on to the ministry of labour which is also in new delhi until about numberember 17 1949. the employees had numbermeans of knumbering when the report was actually received by the central government which is the appropriate government in this case or when the period of 7 days after such receipt expired.


civil appellate jurisdiction civil appeals number. 589 to 590
of 1964.
appeal by special leave from the judgment and order dated
october - 12 13 1961 of the bombay high companyrt in income-
tax reference number 56 of 1956.

n. rajagopal sastri j. b. dadachanji for the
appellants. v. viswanatha sastri r. ganapathy iyer r. h. dhebar
and r. n. sachthey for the respondent. the judgment of the companyrt was delivered by
shah j the appellant is a private trust and was within the
meaning of s. 4a and 4b of the income-tax act 1922 resident
and ordinarily resident within british india in 1948. the
appellant held 1000 shares in an investment companypany styled
home mehta and sons limited  hereinafter called the companypany
which carried on the business of investing in shares in
companies registered in british india and in the former
indian states. dividends from the british indian companypanies
were received by the companypany at its registered office at
bombay and dividends from the indian states companypanies were
received by the companypany at its registered office at
billimora in the state of baroda. in the calendar years 1948 and 1949 the appellant received
at billimora rs. 65000 and rs. 210000 respectively as
dividend in respect of shares held by it in the companypany. the 2nd income-tax officer a-i ward bombay upheld the
claim of the appellant that its dividend income received
from the companypany
at billimora had accrued or arisen in the baroda state and
as the income was number brought into british india it was
exempt from liability to tax by virtue of s. 14 2  c  of the
income-tax act. the companymissioner of income-tax bombay held
that the income accrued or arose to the appellant in bombay
where the dividend was declared and was on that account
liable to be assessed under the income-tax act 1922. the
commissioner accordingly directed the income-tax officer to
pass orders imposing tax on the dividend income received by
the appellant from the companypany. on appeal the income-tax
appellate tribunal held that the dividend income accrued or
arose at billimora and number at bombay but by reason of the
definition of taxable territories the income which accrued
at baroda attracted liability to tax under the income-tax
act and did number qualify for rebate under paragraph 6 of the
merged states  taxation companycessions  order 1949.
the following questions were referred by the tribunal under
s. 66 1  of the indian income-tax act 1922 to the high
court of bombay for its opinion

whether on the above facts and
circumstances of the case the assessee is
entitled to rebate equal to the difference
between the british indian rate and baroda
state rate in respect of the dividend income ? whether on the facts and circumstances
of the case the dividend income accrued or
arose to the assessee at bombay ? the high companyrt held following its earlier judgment in mrs.
kusumben d. mahadevia bombay v. the companymissioner of income-
tax bombay city bombay 1  that the merged states  taxation
concessions  order 1949 did number apply to the income of a
resident assessee and therefore the first question must be
answered in the negative. the high companyrt declined to answer
the second question. with special leave granted by this
court the appellant has appealed to this companyrt. income received by the companypany from its transactions in the
indian states was retained at its office in billimora and
dividend declared out of that income was paid to the
appellant at the registered office in the state of baroda. this dividend it is companymon ground was number brought into
british india. to appreciate the claim that the income
qualifies for rebate under paragraph 6 of the merged states
 taxation companycessions  order 1949 the

income-tax ref. number 28 of 1955 decided on february
20 1956  unreported . c.i./66-7
5 82
relevant statutory developments in tax laws to effectuate
the merger of the former indian states since august 15 1947
may be briefly set out. under s. 14 2   r.  of the income-
tax act added by act 23 of 1941 and amended by act 22 of
1947 it was enacted that
the tax shall number be payable by an
assessee . . . in respect of any income
profits or gains accruing or arising to him
within an indian state unless such income
profits or gains are received or deemed to be
received in or are brought into british india
in the previous year by or on behalf of the
assessee or are assessable under section 12b
or section 42.
by paragraph 3 of the states merger  governumbers provinces
order 1949 it was provided that the states specified in
sch. 11 shall as from august 1 1949 be administered in
all respects as if they formed part of the provinces
specified in the schedule and by paragraph 4 all the laws
in force in the merged states or in any part thereof
immediately before august 1 1949 were to companytinue in force
until repealed modified or amended by a companypetent
legislature or other companypetent authority. the state of
baroda was one of the states specified in the schedule and
it was to be administered as if it formed part of the
province of bombay. the indian income-tax act was applied
to the merged states by s. 3 of the taxation laws  extension
to merged states and amendment  act 67 of 1949 with
retrospective effect from april 1 1949 and by s. 7
corresponding laws relating to income-tax in the merged
states were repealed. it was provided that if immediately
before the 26th day of august 1949 there was in force in
any of the merged states any law relating to income-tax
supertax or business profits tax that law shall cease to
have effect except for the purposes of the levy assessment
and companylection of income-tax and super-tax in respect of any
period number included in the previous year for the purposes of
assessment under the indian income-tax act 1922 as
extended to that state by s. 3 or as the case may be the
levy assessment and companylection of business profits tax for
any chargeable accounting period ending on or before the
31st day of march 1948 and for any purposes companynected with
such levy assesssment or companylection. by the application of
act 67 of 1949 and the repeal of laws companyresponding to
those applied to the merged states by s. 3 residents in
former british india and in the merged states were sought to
be treated equally. but the result was a sudden imposition
of high rates of taxation under the indian income-tax act
read with the appro-
priate finance acts upon the residents of the merged states. with a view to cushion the impact the central government in
exercise of the powers companyferred by s. 60a of the indian
income-tax act granted certain exemptions from and
reductions in the rates of- tax and made certain other
modifications in the tax structure in its application to the
merged states. by paragraph 3  i  of the merged states
 taxation companycessions  order 1949 the expression act was
defined as meaning the taxation laws  extension to merged
states and amendment  act 67 of 1949. paragraphs 4 5 6
and 6a of the order as amended or added by the numberification
dated march 11 1949 provided

the provisions of paragraphs 5 6 9
10 and 11 of this order shall apply to only so
much of the income profits and gains included
in the total income of an assessee as would
had he been resident in british india have
been exempt under clause  c  of subsection  2
of section 14 of the indian income-tax act
1922 if the act had number been passed. 5.  1  the income profits and gains of
an  previous year ending after the 31st day of
march 1948 which is a previous year-

for the merged state assessment year
1948-49 or

for the merged state assessment year
1949-50shall be assessed under the indian
income-tax act .1922 if and only if such
income profits and gains have number before the
1st day of august 1949 been assessed under
the state law. where the income profits and gains
referred to in sub-paragraph  1  have number been
assessed under the state law they shall be
assessed under the indian income-tax act
1922 and the tax payable thereon shall be
determined as hereunder-

the tax on the amount of such income
profits and gains included in the total income
shall be companyputed at the indian rate of tax

the amount of such income profits and
gains shall be companymuted under the state law
aid the tax thereon companyputed at the merged
slate rate of tax

the amount if any by which the tax
computed under clause  i  exceeds the tax
computed under clause  ii  shall be allowed as
rebate from the first mentioned tax and the
amount of the first mentioned tax as so
reduced shall be the tax payable. for the purposes of this paragraph-
 a  the merged state assessment year 1948-49
means the assessment year which companymences on
any date between the 1st april 1948 and the
31st december 1948 both dates inclusive and
 b  the merged state assessment year 1949-50
means the assessment year which companymences on
any date between the 2nd january 1949 and
the 31st july 1949 both dates inclusive. 6.  1  the income profits and gains of
any previous year ending after the 31st day of
march 1948 which does number fall within
paragraph 5 of this order or of any previous
year companymencing after the previous year
referred to in the said paragraph shall be
assessed under the indian income-tax act
1922 but the tax payable on so much of the
income as pertains to the period ending before
the 1st day of august 1949 shall be
determined as hereunder-

the tax on so much of such income
included in the total income shall be companyputed
 a  at the indian rate of tax and  b  at the
rates of tax in force in the merged state
immediately before the 1st day of august
1949

the amount by which the tax companyputed
under sub-clause  a  of clause  i  exceeds the
tax companyputed under sub-clause  b  of clause

shall be allowed as rebate from the first
mentioned tax and the amount of the first
mentioned tax as so reduced shall be the tax
payable. where any previous year falls partly
before and partly on or after the 1st day of
august 1949 the income profits and gains
pertaining to the period falling before the
said date shall unless the income-tax
officer having regard to any
special
circumstances otherwise
directs with the approval of the inspecting
assistant companymissioner of income-tax be in
the proportion which the period before the
said date bears to the whole previous year. 6a. the income profits and gains of any
previous year referred to in paragraph 5 or 6
of this order which accrue or arise without
the taxable territories to a person who is
resident but who would number be resident in the
taxable territories if the act had number been
passed shall be charged to tax in the same
manner and to the same extent as specified in
the said paragraph 5 or 6 as the case may
be. by the application of the income-tax act 1922 to the
territories of the merged states income received accrued
or arisen or deemed to be received accrued or arisen to any
person resident within the territory of the merged states
became chargeable to tax under that act. with a view to
avoid hardship caused by the sudden application of high
rates of taxation the central government exercised its
powers under s. 60a of the indian income-tax act and
modified the tax levy so as to give certain exemptions and
benefits to residents in the areas of the former indian
states. by paragraph 6 of the merged states  taxation
concessions  order 1949 in respect of the income of any
previous year ending with march 31 1948 which accrued or
arose to persons who were residents in the territories of
the merged states benefit of the same rate of income-tax to
which it was subject in the merged state was granted by
providing that the difference between tax companyputed at the
indian rate and the state rate shall be allowed as rebate. in respect of income of residents in the merged states
arising outside the taxable territories a similar rebate
was to be given  paragraph 6a . the result was that income
of residents of the merged states became chargeable to tax
under the indian income-tax act but it was to companytinue to
get for a limited period benefit of the lower rates of tax
operative under the law in force in the states before
merger. this companycession or benefit was to apply by the
express provisions companytained in paragraph 4 only to so much
of the income profits and gains included in the total
income of an assessee as would had he been resident in the
taxable territories have been exempt under cl.  c  of sub-
s.  2  of s. 14 of the indian income-tax act 1922 if the
act had number been passed. companynsel for the appellants claims that paragraph 4 applies
to income of all assessees resident within british india as
defined
in s. 2 3a  at the relevant time and number merely to
residents in the territories of the merged states. it is
contended that by paragraph 4 it was intended number only to
give the benefit of the state rate of taxation to residents
of the former indian states which were merged with the
provinces under the states merger  governumbers provinces
order 1949 but also to preserve the benefit which was
conferred by s. 14 2   c  of the income-tax act to residents
of the territories of british india before august 15 1.947
in respect of income arising or accruing to them within the
teffitory of the merged states. it is said that by the
application of act 67 of 1949 all residents in the taxable
territory became liable to pay tax at indian rates but with
a view to maintain the status quo ante it was intended by
the taxation companycessions order 1949 to restore the state
rates of taxation to residents in the former indian states
and also to companytinue the exemption in respect of the income
of the former british indian residents arising or accruing
in the territory of the merged states within the limits
prescribed by s. 14 2   c . but paragraph 4 of the taxation
concessions order 1949 is number susceptible of any such
interpretation. paragraph 4 of the order and ss. 3 4 4a
4b and s. 14 2   c  of the income-tax act must be read
together. the indian states specified in the schedule to
the states merger order on their merger with the provinces
of british india ceased to be separate entitles and became
part of british india and by the application of act 67 of
1949 the indian income-tax act was applied to the
territories companyprised within british india. section
14 2  c  undoubtedly remained in force even after the merger
of the indian states effected by the states merger order
but its operation was restricted. after the merger of the
states income arising or accruing within the territory of
such merged state companyld number be deemed to be income arising
or accruing within an indian state for the state had ceased
to exist and the income was for the purpose of s. 4 of the
income-tax act income arising or accruing to a person
resident within the taxable territories. there is numberhing
in paragraph 4 of the companycessions order which seeks to grant
exemption from liability to tax in respect of income which
prior to merger of the states was number liable to tax by
virtue of s. 14  2   c  but has since the application of
the income-tax act become so liable. the claim that paragraph 4 applies to income of residents of
former british india which was exempt from taxation under s.
14 2   c  is belied by the plain words of the order. para-
graph 4 does number substantively grant any exemption it
merely designates income to which the provisions of the
order granting
exemption will apply. it applies to income which would if
act 67 of 1949 had number been passed have been regarded as
accruing or arising in an indian state and the assessee
would in respect of that income had he been a resident of
the taxable territory before merger have been exempt under
s. 14 2   c . the use of the expression had he been a
resident implies that the benefit is number to enure to
persons who were before the merger entitled to the exemption
under s. 14 2   c . the order provides that paragraphs 5 6 9 10 and 11 apply
to a slice of income and number to the entire income of an
assessee and by the express terms it is that slice of the
income as would had the assessee been resident in the
taxable territories have been exempt under cl.  c  of sub-
s.  2  of s. 14 of the indian incometax act if the taxation
laws act 1949 had number been passed. in terms the
concession is number given to residents of the territories of
british india and the companytext does number warrant an
implication to the companytrary. it is true that by this interpretation of paragraph 4
british indian residents are denied the benefit of the
exemption under s. 14 2   c  in respect of income arising or
accruing in the territories of the former merged states. but that denial is the result of merger of the states into
british india. the operation of s. 14  2   c  had become
restricted by the modification of the definition of british
india. since that amendment income accruing or arising
after the merger in indian states outside british india
alone would be exempt under s. 14  2   c  - there is numberhing
in the companycessions order which suggests that it was intended
to ensure companytinuance of the exemption under s. 14 2   c  to
residents of british india as it was before merger as if
the merger had number taken place. the use of the expression
had he been resident in the taxable territories introduces
a fiction it grants the benefit of s. 14 2   c  though on
the express terms it is number available to a person who was
number before the merger companyered thereby and in respect of
income which would have been if the merger act had number been
passed exempt from taxation in his hands if he had been
resident in british india. in our view chagla c.j. was
right in observing in mrs. kusumben d. mahadevias case 1
that
a person resident in a merged state whose
income accrued to him there companyld number
possibly claim exemption under section 14  2
 c . such an exemption companyld only be claimed
by a person resident in the taxable
territories. in order to give this particular

income-tex ref.