Input:
Civil Appeals Nos.
600 601 and 1699 1714 and 877 878 of 1975.
Appeals by Special Leave from the Judgment and Order dated 30th January 1975 of the Gujarat High Court in Spl.
Civil Applns.
Nos. 15, 1194, 88, 89, 90, 107, 113, 121, 122, 124, 125, 166, 182, 202, 112, 123, 177, 1757, 149, 150 of 1974 respectively.
622 F. section Nariman, K. section Nanavati, P. C. Bhartari and J. B. Dadachanji, for Appellant (In CA 600/75).
K. section Nanvavati, P. C. Bhartari and J. B. Dadachanji, for the Appellants (In CA 601/75 and CA 1700 1714/75).
V. M. Tarkunde, K. section Nanavati, P. C. Bharatari and J. B. Dadachanji for the Appellant (in CA 1699/75).
V. N. Ganpule, for Appellants (In CA 877 878/75).
M. C. Bhandare and M. N. Shroff, for the Respondents (In CA 600 601 of 1975) and CA Nos.
1699 1714/75 and 877 to 878/75.
The Judgment of the Court was delivered by KHANNA, J.
This judgment would dispose of civil appeals Nos. 600, 601, 877, 878 and 1699 to 1714 of 1975 which have been filed by special leave against the judgment of Gujarat High Court dismissing petitions under article 226 of the Constitution of India filed by the appellants.
The appellants in these petitions assailed the validity of sections 53A and 53B of the Bombay Industrial Relations Act, 1946 (Bombay Act No. 1 of 1947) (hereinafter referred to as the principal Act).
These sections along with some other provisions were inserted in the principal Act by the Bombay Industrial Relations and Industrial Disputes (Gujarat Amendment) Act, 1972 (Gujarat Act No. 21 of 1972).
The appellants also challenged the validity of the rules which were added to the Bombay.
Industrial Relations (Gujarat) Rules, 1961 as per notification dated June 4 1973.
In addition to that the appellants challenged the validity of notification dated December 17, 1973.
The principal Act was enacted to regulate the relations of employers and employees, to make provisions for settlement of industrial disputes and certain other purposes.
In 1956 the industrial policy resolution of the Government of India stated inter alia that in a socialist democracy labour is a partner in the common task of development and must participate in it with enthusiasm.
Emphasis was laid upon joint consultation of workers and technicians and for associating progressively labour in the management of the industry.
Stress was again laid on joint management councils at the tripartite conference held in July 1957.
Representatives of labour, management and Government were present at that conference.
There was, however, no statutory provision for joint management councils and whatever was done, was on a voluntary basis.
Sections 53A and 53B were inserted in the principal Act by Gujarat Act 21 of 1972.
The two sections read as under: "53.A(1) If in respect of any industry, the State Government is of opinion that it is desirable in public interest to take action under this section, it may, in the case of all undertakings or any class of undertakings in such industry, in which five hundred or more employees are employed or have been employed on any day in the preceding twelve months, by general or special order require the employer to constitute 623 in the prescribed manner and within the prescribed time limit a Joint Management Council, consisting of such number of members as may be prescribed, comprised of representatives of employers and employees engaged in the undertaking, so however that the number of representatives of employees on the Council shall not be less than the number of representatives of the employers.
Notwithstanding anything contained in this Act, the representatives of the employees on the Council shall be elected in the prescribed manner by the employees engaged in the undertaking from amongst themselves: Provided that a list of industries in respect of which no order is issued under this sub section shall be laid by the State Government before the State Legislature within thirty days from the commencement of its first Session of each year.
(2) One of the members of the Council shall be appointed as Chairman in accordance with rules made in this behalf.
53B (1) The Council shall be charged with the general duty to promote and assist in the management of the undertaking in a more efficient, orderly and economical manner, and for that purpose and without prejudice to the generality of the foregoing provision, it shall be the duty of the council (a) to promote cordial relations between the employer and employers; (b) to build up understanding and trust between them; (c) to promote measures which lead to substantial increase in productivity; (d) to secure better administration of welfare measures and adequate safety measures; (e) to train the employees in understanding the responsibilities of management of the undertaking and in sharing such responsibilities to the extent considered feasible; and (f) to do such other things as may be prescribed.
(2) The Council shall be consulted by the employer on all matters relating to the management of the undertaking specified in sub section (1) and it shall be the duty of the Council to advise the employer on any matter so referred to it.
(3) The Council shall be entrusted by the employer with such administrative functions, appearing to be connected with or relevant to, the discharge by the Council of its duties under this section, as may be prescribed.
624 (4) It shall be the duty of the employer to furnish to the Council necessary information relating to such matters as may be prescribed for the purpose of enabling it to discharge its duties under this Act.
(5) The Council shall follow such procedure in the discharge of its duties as may be prescribed.
" Consequent upon the insertion of sections 53A and 53B in the principal Act, the Bombay Industrial Relations (Gujarat) Rules were also amended and certain new rules were added.
Rule 47A relates to the manner of election of two persons from amongst employees in disputes.
Rule 61A reads as under: "61 A. Constitution of Joint Management Council.
Any employer who is required by an order made under sub section (1) of section 53 A to constitute a Joint Management Council shall constitute within a period of ninety days from the date of the said order a Joint Management Council consisting of ten members, out of which the number of representatives of the employer to be nominated by the employer and the number of representatives of employees engaged in the undertaking to be elected from amongst themselves shall be such as may be determined by the employer so however that the number of representatives of the employees on the Council shall not be less than the number of representatives of the employer.
" Rule 61B to rule 61T relate to election of employees representatives on the Management Council.
Rule 61U prescribes for appointment of Chairman of the Council.
Rule 61V deals with the constitution of the Council from time to time and the manner of filling in the vacancies.
Rule 61W relates to the number of meetings of the Council and provides that the Chairman shall also have a second or casting vote in the event of equality of votes.
Rule 61X makes other provisions for the meeting, while Rule 61Y deals with annual returns.
Rules 61Z, 61ZA and 61ZB to which reference has been made during the course of arguments read as under: "61 Z. Duties of the Council.
It shall be the endeavour of the Council: (i) to improve the working conditions of the employees; (ii) to encourage suggestions from the employees; (iii)to assist in the administration of laws and agreements; (iv) to serve generally as an authentic channel of communication between the management and the employees; (v) to create in the employees a sense of participation; (vi) to render advice, in the general administration of Standing Orders and their amendment when needed; 625 (vii)to render advice on matters pertaining to retrenchment or rationalisation, closure, reduction in or cessation of operations 61 Z A. Administrative functions with which the Council shall be entrusted by Employer.
The Council shall be entrusted by the employer with administrative functions in respect of: (i) operation of vocational training and apprenticeship schemes; (ii) preparation of schedules of working hours and breaks and of holidays; and (iii)payment of rewards for valuable suggestions received from the employees.
61 Z B. Matters in respect of which the Council shall be entitled to receive information.
The Council shall be furnished by the employer with information in respect of: (i) general economic situation of the concern; (ii) the state of the market, production and sales programmes; (iii)organisation and general running of the undertaking; (iv) circumstances affecting the economic position of the undertaking; (v) methods of manufacture and work; (vi) the annual balance sheet and profit and loss of statement and connected documents and explanation; and (vii)long term plan for expansion, re employment etc." Imugned notification dated December 17, 1973 reads as under: "No. KH SH 1988/BIR 1073 JH Whereas in respect of the industry specified in the Schedule annexed hereto the State Government is of opinion that it is desirable in public interest to take action under section 53A of the Bombay Industrial Relations Act, 1964 (Bom.
of 1947), in the case of all undertakings in the said industry in which five hundred or more employees are employed or have been employed any day in the preceding twelve months.
Now, therefore, in exercise of the powers conferred by sub section (1) of the said section 53 A, the Government of Gujarat hereby requires the employer of each such undertaking in the said industry to constitute a Joint Management Council in the manner and within the time limit specified in rule 61 A G of the Bombay Industrial Relations (Gujarat) Rules, 1961.
626 SCHEDULE Cotton Textile Industry as specified in the Government of Bombay Political and Services Department, Notification No. 2847/34 A, dated 30th May 1939 and the Government of Gujarat, Education and Labour Department, Notification No. BIR 1361, dated the 17th July 1961.
" Although a number of contentions were advanced before the High Court to assail the validity of sections 53A and 53B as well as the rules mentioned above, before us learned counsel for the appellants have restricted their challenge to the impugned provisions only on the ground of lack of legislative competence of the State Legislature.
So far as notification dated December 17, 1973 is concerned, we may state that the said notification is no longer in force and, instead of that notification a fresh notification date March 1, 1976 has been issued.
In the circumstances, no opinion need be expressed on the validity of notification dated December 17, 1973.
We also express no opinion on the reasons given by the High Court in upholding the aforesaid notification.
It is also, in our opinion not necessary to express any opinion about the validity of notification dated March 1, 1976 as this notification was issued subsequent to the decision of the High Court and was not the subject matter of writ petitions before the High Court.
We may now advert to the question of the legislative competence of Gujarat legislature to enact sections 53A and 53B reproduced above.
In upholding the contention of the respondent State that the impugned provisions were within the sphere of the legislative competence of the State legislature under entries 22 and 24 of List III in Seventh Schedule to the Constitution, the High Court has held that the subject matter of the above legislation was labour welfare even though it might have some incidental effect on corporate undertakings or controlled industries.
Dealing with rule 61ZB the High Court held that the information to be furnished should be of such a nature that its disclosure would not be harmful to the undertaking.
The information, it was held, should not be confidential or relating to trade secrets.
Sections 53A and 53B as already mentioned were inserted in the principal Act by Gujarat Act No. 21 of 1972.
This Act was published on October 19, 1972 after it had received the assent of the President.
According to the respondents, the above provisions have been enacted under entries 22 and 24 of List III of the Seventh Schedule to the Constitution.
Entry 22 relates to trade unions; industrial and labour disputes, while entry 24 deals with "welfare of labour including conditions of work, provident funds, employers ' liability, workmen 's compensation, invalidity and old age pensions and maternity benefits".
As against that, the contentions advanced on behalf of the appellants is that the impugned legislation falls under entries 43, 44 and 52 of List I in the Seventh Schedule which relate respectively to "incorporation, regulation and winding up of trading corporations including banking, insurance and financial corporations but not including 627 co operative societies;" "incorporation, regulation and winding up of corporations, whether trading or not, with objects not confined to one State, but not including universities;" and "industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest".
We have given the matter our earnest consideration, and we find no sufficient ground to interfere with the finding of the High Court that the impugned statutory provisions fall under entries 22 and 24 of List III in Seventh Schedule of the Constitution and that the State legislature was competent to enact the same.
The impugned provisions in our opinion, are intended in pith and substance to forestall and prevent industrial and labour disputes.
They constitute also in essence a measure for the welfare of the labour.
From a conceptual viewpoint, workers ' management of undertakings or self management represents the most far reaching degree of association of workers in decisions concerning them.
Probably the best known example of this type of workers ' participation is the Yugoslav system of self management.
Under that system, the workforce of the undertaking exercises the principal functions of management through the self management organs, the organisation and powers of which have been established since the sixties by the statute or internal regulations of the undertaking, namely, the workers ' assembly and the workers council.
For varying lengths of time, in a large number of countries, and by virtue of a legal obligation, workers ' representatives have been included in management organs in the public sector as a whole or in certain nationalised undertakings.
In the private sector, the system which has pushed workers ' representation to the furtherest degree is that of co determination applied in the Federal Republic of Germanv since the beginning of the fifties.
By an Act of 1951, equal representation of workers was established on the supervisory boards of large iron and steel and mining undertakings.
These boards generally include five workers ' representatives" five representatives of the shareholders and an eleventh member nominated by mutual agreement.
In addition, one of the members of the directorate or management board, namely, the "labour director" who is generally responsible for personnel questions and social affairs, may only be nominated or dismissed in agreement with the maiority of the workers ' members of that board.
Under an Act of 1952, the workers ' representation on the supervisory boards of the companies which do not belong to the above industries is one third of the total membership.
Pressure is however, being brought by the trade unions for equal representation of workers on the supervisory boards in sectors other than iron and steel and mining (see International Labour Organization Background Paper on Symposium on Workers ' Participation in Decisions within Undertaking in Oslo in August 1974).
The object of workers ' participation in joint management councils is to enlist co operation of workers with a view to bring about improvement in the performance of industrial organisations.
It is assumed that the above scheme would give a robust feeling of participation to the workers in the management and thus result in improved functioning of the industrial undertaking.
Another object appears to 628 be to democratise the industrial milieu and ensure egalitarianism in the process.
It has not been disputed on behalf of the appellants that the various objectives mentioned in clauses (a) to (f) of sub section (1) of section 53B pertain to welfare of labour.
What is, however, contended is that joint management councils may claim to exercise such functions under the opening words of sub section (1) of section 53B as can be discharged only by the Board of Directors.
This contention, in our opinion, is not well founded.
The impugned statutory provisions, in our opinion, should be so construed and implemented as would sustain their constitutional validity.
The functions which can be performed by the joint management councils have to be of such a character as would pertain to welfare of labour or prevent industrial disputes.
Such functions would be analogous to those specified in clauses (a) to (f).
If the impugned legislation in pith and substance relates to subjects which are within the competence of the State legislature, as it in fact does, the fact that there is an incidental encroachment on matters which are the subject matter of entries in List I would not affect the legislative competence of the State legislature to pass the impugned legislation.
The impugned rules, in our opinion, likewise relate to subjects which are within the competence of the State legislature.
The rules in the very nature of things can operate only in that field in which the parent Act can operate.
For about a hundred years the term industrial democracy has been often mentioned in the writings of socialists, trade unionists and social reformers.
Of late the industrialists have taken it over.
The reason for that is that industrialists have become conscious that any approach which has the effect of treating workers as if they were commodities is unsound and wasteful economically.
The industrialists, it has been said, tried paternalism or benevolent autocracy, and they have found that this did not work, just as Frederick the Great and his followers found that benevolent political despotism did not work.
Democracy in political terms means the consent of the governed in the governance of the country.
In industry it means that wage earners shall have an effective voice.
It has been observed by Edward Filence.
"labour. , having experienced the advantages of democracy in government now seeks democracy in industry.
Is it any stranger that a man should have a voice as to the conditions under which he works than that he should participate in the management of the city and the state and the nation ? If a voter on governmental problems, why not a voter on industrial problems ?" (See page 339, Personnel and Labour Relations by Nash/Miner).
The above approach postulates trade unions as a potential positive force.
For management and union to share the pluralist ideology requires more than agreement about joint decision making as such.
It requires also that neither side enforces claims or imposes policies which are found excessively burdensome by its counterpart.
As observed 629 by Alan Fox on page 303 of Beyond Contract Work and Trust Relations: "It follows from this analysis that management will be readier to accept pluralistic forms of decision making the greater its confidence that it will always be able, in the last resort, to bend employee claims towards acceptable compromises.
It may even be convinced of its ability to charm them away altogether or at least much reduce them by 'rational ' argument and persuasion designed to bring out the 'true ' common interests.
In this sense a formal acceptance of pluralistic patterns may mask unitary convictions on managements past about the nature of the enterprise.
It may regard joint decision making and a fully institutionalised handling of claims and grievances not as mechanisms for compromising genuine conflicts of interest but as devices which facilitate the 'working through ' of mistaken conceptions, psychological blockages, and organizational confusions by a process of 'rational ' clarification.
" It would appear from the above that the concept of joint management has a much wider connotation.
That wider aspect of joint management would plainly be impermissible under the impugned legislation as it has been enacted by the State legislature.
Such legislation can operate only within a limited field because that is the only way in which its constitutional validity can be sustained against the challenge on the ground of want of legislative competence by the State legislature.
With the above observations we dismiss the appeals, but in the circumstances leave the parties to bear their own costs throughout.
V.P.S. Appeal dismissed.

Output:
Sections 53A and 53B of the Bombay Industrial Relations Act, 1946, were inserted in that Act by the Bombay Industrial Relations and Industrial Disputes (Gujarat Amendment) Act, 1972.
They relate to the constitution of joint management councils, which include representatives of the employees also, for the purpose of forestalling and preventing industrial disputes.
Consequent amendments were made in the Bombay Industrial Relations (Gujarat) Rules.
The appellants challenged the two sections on the ground that the State Legislature was incompetent to enact them.
According to the appellants, the impugned legislation falls under Entries 43, 44 and 52 of List I, VII Schedule to the Constitution, which relate to matters of incorporation etc.
The High Court held that they fall under Entries 22 and 24 of List III, which relate to labour welfare and industrial disputes, and that the State Legislature was competent to enact them.
Dismissing the appeal to this Court, ^ HELD: It has been recognised during the last hundred years that the wage earners should have an effective voice in the management of the industry in which they are working.
The concept of joint management of industry by the employer and the employee may have a wide connotation, because, the joint management councils may not only perform such functions as pertain to welfare of labour, that is, those relating to the various objectives mentioned in cls.
(a) to (f) of section 53B(1) but may also claim to exercise such functions as can be discharged by the board of directors.
This wider aspect of the joint management would however be impermissible under the impugned provisions, because the provisions should be so construed and implemented as would sustain their constitutional validity.
They have been enacted by the State Legislature and so the functions which can be performed by the joint management councils have to be of such a character as would pertain to welfare of labour or prevent industrial disputes.
If the impugned legislation, in pith and substance, relates to subjects which are within the competence of the State Legislature, the fact that there is an incidental encroachment on matters which are the subject matter of Entries in List I, would not affect the legislative competence of the State Legislature to pass the impugned legislation.
[628A, 629E] Rules in the very nature of things can operate only in that field in which the parent Act can operate, and hence, the impugned rules, likewise, relate to subjects which are within the competence of the State Legislature.
[628D]


Input:
ivil Appeal No. 3050 of 1989.
From the Judgment and Order dated 21.12.87 of the Orissa Administrative Tribunal in T.A. No. 161 of 1987.
P.P. Rao and C.S.S. Rao for the Appellant.
P.N. Misra and A.K. Panda for the Respondents.
The Judgment of the Court was delivered by SINGH, J.
Leave granted.
This appeal is directed against the judgment of the Orissa Administrative Tribunal, Bhubaneswar dated 21.12.
1987 dismissing the appellant 's suit challenging his pre mature retirement from service.
The appellant, a qualified Electrical Engineer with training in West Germany, joined service of Orissa Govern ment as an Assistant Engineer (Electrical) in 1955.
In 1961 he was promoted to the rank of Executive Engineer (Electri cal) and deputed to the Orissa State Electricity Board.
In March, 1976 he was promoted to the post of Superintending Engineer (Electrical) on the basis of merit.
In 1979 while working on the post of Superintending Engineer (Electrical) he was allowed to cross the Efficiency Bar with effect from 1.1.1979.
He also officiated on the post of Chief Engineer (Electrical) in Orissa State Electricity Board.
Since he had completed 50 years of age a Review Committee constituted by the Government of Orissa considered his service record in October, 1983 for determining his suitability for retention in service in accordance with the first proviso to Rule 71(a) of the Orissa Service Code.
On the recommendation of the 806 Review Committee the State Government by its order dated 10.11.1983 pre maturely retired the appellant from service.
He filed a civil suit before the Subordinate Judge, Bhuba neswar challenging the validity of his pre mature retirement on a number of grounds.
On the Constitution of the Orissa Administrative Tribunal the suit was transferred to the Administrative Tribunal, Bhubaneswar, under Section 29 of the Administrative Tribunals Act.
The Tribunal by its order dated 21.12.1987 dismissed the suit and upheld the validity of appellant 's pre mature retirement.
Hence this appeal.
The Tribunal held that the Review Committee on an as sessment of the overall performance of the appellant 's conduct had bona fide made recommendations to the State Government that the appellant 's retention in service was not in public interest, and in pursuance thereof the State Government retired the appellant pre maturely.
The Tribunal further held that the order of pre mature retirement does not suffer from any legal infirmity.
Learned counsel for the appellant urged that the Tribunal committed serious error in upholding the order of pre mature retirement as the recom mendation of the Review Committee was vitiated as it was rounded on irrelevant and inadmissible material.
In this connection, he urged that the Review Committee had consid ered a number of adverse remarks contained in the appel lant 's service record for the remote past years which had no relevance and it had further considered adverse entries relating to the recent years although those adverse entries had not become final as the representations against those adverse entries had not been considered of by the State Government.
He urged that while considering overall perform ance of the appellant the Review Committee was influenced by the entries of remote past, which had lost their signifi cance as inspite of those entries the appellant had been promoted to higher post on merit and he had also been per mitted to cross Efficiency Bar.
Before we consider these submissions it would be pertinent to refer of the recommen dations of the Review Committee which are as under: "From the year 1969 70 to 1982 83, Shri Bai dyanath Mohapatra has got adverse remarks for the years 1969 70, 1970 71, 1972 73, 1975 76, 1976 77, 1981 82 and 1982 83.
Although he was an intelligent officer, he did not apply his mind and did not bestow adequate zeal in his work.
He did neither assume responsibility nor did he work hard for which the Chief Engineer had to deal with his Executive Engineers and Assistant Engineers directly.
He was found to be too cursory in dealing with the problems and adept in 807 putting the responsibilities for deficiencies on others.
His performance during most of the years was found to be of average standard.
The Committee, considering his overall perform ance, was of the view that his continuance in service is not desirable in public interest and that he be retired prematurely.
This officer would have retired on superannuation on 30.9.1989." No exception can be taken to the Government 's opinion in retiring the appellant pre maturely on the basis of the aforesaid recommendation of the Review Committee as it clearly indicated that the appellant 's retention in service was not in public interest.
The purpose of the Rule confer ring power on the Government to retire Government servants pre maturely is to energise its machinery by "chopping of the dead wood" as held by this Court in Union of India vs J.N. Sinha, [1971] 1 SCR 791.
The question which falls for consideration is whether the Review Committee was justified in making its recommendations on the basis of adverse en tries awarded to the appellant in remote past especially when the appellant had been promoted to the post of Superin tending Engineer in 1976 and he had further been permitted to cross Efficiency Bar in 1979.
The adverse entries relat ing to the years 1969 70, 1970 71, 1972 73 and 1975 76, had lost all significance, because inspite of those entries the appellant was considered to be an intelligent and efficient officer and in that view he was promoted to the post of Superintending Engineer.
If those entries did not reflect deficiency in appellant 's work and conduct for the purpose of promotion, it is difficult to comprehend as to how those adverse entries could be pressed into service for retiring him pre maturely.
When a Government servant is promoted to a higher post on the basis of merit and selection, adverse entries if any contained in his service record lose their significance and those remain on record as part of past history.
It would be unjust to curtail the service career of Government servant on the basis of those entries in the absence of any significant fall in his performance after his promotion.
The adverse entries for the years 1969 70, 1970 71, 1972 73 and 1975 76 were communicated in a lot to the appel lant in 1978, although under the instructions issued by the State Government the adverse entries must be communicated by December of each year.
The purpose of communicating adverse entries to the Government servant is to inform him regarding his deficiency in work and conduct and to afford him an opportunity to make, amend, and improvement in his work ,and further if the entries are not justified the communication 808 affords him an opportunity to make representation.
If the adverse remarks awarded to a Government servant are communi cated to him after several years, the object of communicat ing entries is defeated.
It is therefore imperative that the adverse entries awarded to a Government servant must be communicated to him within a reasonable period to afford him opportunity to improve his work and conduct and also to make representation in the event of the entry being unjustired.
In the instant case, adverse entries relating to a number of years were communicated to the appellant in one 101 under a letter dated 27.2.1978 contrary to the instructions issued by the State Government as contained in Circular No. 29 dated 19.2.1953.
Belated communication of the entries re sulted into denial of reasonable opportunity to the appel lant to improve his performance.
Further since adverse remarks for several years were communicated with inordinate delay it was impossible for the appellant to make an effec tive representation against the same.
The appellant 's repre sentation against the aforesaid entries was rejected on 12.3.1981 on the ground that the representation was barred by time.
Since the communication of the adverse entries was itself highly belated the representation against those adverse remarks should have been considered on merits and the same could not be rejected on the alleged ground of delay as the Government itself was guilty of inordinate delay in communicating the adverse remarks to the appellant.
Adverse remarks relating to the years 1981 82 and 1982 83 were taken into account by the Review Committee in formu lating its opinion against the appellant 's ,retention in service.
The appellant 's representation against those en tries had not been considered, yet the Review Committee placed reliance on those entries.
In fact, the adverse remarks for the year 1981 82 were communicated to the appel lant under the letter dated 21.6.1983 which was received by him on 5.7.1983, and as regards the adverse remarks for the 'year 1982 83 these were communicated to the appellant under the letter dated 29.7.1983 which was received by him on 9.8.1983.
He made representation to the Government against the aforesaid adverse remarks on 1.11.1983 but before the representation could be considered by the Government the impugned order of pre mature retirement was made on 10.11.1983.
These facts make it amply clear that the appel lant 's representation against the aforesaid adverse remarks for the years 1981 82 and 1982 83 was pending and the same had not been considered or disposed of on the date the impugned order was issued.
It is settled view that it is not permissible to pre maturely retire a Government servant on the basis of adverse entries, representations against 809 which are not considered and disposed of.
Brij Mohan Chopra vs State of Punjab, ; When this aspect was pressed before the Tribunal, it took a peculiar view in holding that since the representation had not been made before the date on which the Review Committee had considered the appellant 's case, the Committee need not have waited for the disposal of the appellant 's representation and it was free to take into account the adverse remarks awarded to the appellant in the years 1981 82 and 1982 83.
The appellant placed reliance on the decision of this Court in Brij Mohan Chopra 's case but the Tribunal by some in volved logic avoided giving effect to the law laid down by this Court.
It is not disputed that in the State of Orissa a Government servant has right to make representation within six months from the date of communication of the adverse remarks.
The appellant had right to make representation against the adverse entries within six months period, there fore, the adverse entries awarded to him in the years 1981 82 and 1982 83 could not be taken into account either by the Review Committee or by the State Government in forming the requisite opinion as contemplated by Rule 71(1)(a) of the Orissa Service Code, before the expiry of the period of six months.
Since the period prescribed for making representa tion against the adverse remarks for the years 1981 82 and 1982 83 had not expired, the proper course for the Review Committee should have been not to consider those entries or in the alternative, the Review Committee should have waited for the decision of the Government on the appellant 's repre sentation.
The view taken by the Tribunal is not sustainable in law.
There is a disturbing feature of this case which viti ates Tribunal 's order.
Shri Gian Chand, Chairman of the Tribunal, ex Chief Secretary of the State of Orissa, was member of the Review Committee which made recommendation against the appellant for his pre mature retirement, and in pursuance thereof the State Government had issued the im pugned order.
It appears that Sh.
Gian Chand, had later been appointed as Chairman of the Administrative Tribunal.
Shri Gian Chand, participated in the proceedings of the Tribunal, and he is party to the decision of the Tribunal.
These facts show that Mr. Gian Chand, who had administratively taken a decision against the appellant, considered the matter judi cially as a Chairman of the Tribunal, thereby he acted as a Judge of his own cause.
While it is true that there is no allegation of personal bias against Sh.
Gian Chand, he may have acted bona fide, nonetheless, the principles of natural justice, fair play, and judicial discipline required that he should have abstained from hearing the appellant 's case.
While considering the appellant 's case the Tri 810 bunal exercised judicial powers and it was required to act judicially, as the jurisdiction of the Civil Court and High Court have been excluded and vested in the Administrative Tribunal.
The Members of the Tribunal must follow rules of natural justice in administering justice like Judges, they should not sit in judgment on their own decisions.
Gian Chand was disqualified to hear the appellant 's case.
The order of the Tribunal is vitiated on this ground but as the appellant had not raised any objection before the Tribunal against the participation of Sh.
Gian Chand, we do not consider it necessary to grant relief to the appellant on this ground.
For the aforesaid reasons we hold that the order of pre mature retirement is vitiated and the Tribunal committed error in upholding the same.
We accordingly allow the ap peal, set aside the order of the Tribunal dated 21.12.1987 and also the order of the State Government dated 10.11.
The appellant is entitled to reinstatement with all consequential benefits of service in addition to the costs.
R.S.S. Appeal allowed.

Output:
The appellant had joined service in the Orissa Govern ment as an Assistant Engineer in 1955, and in 1983 he was working on the post of Superintending Engineer.
Since he had completed 50 years of age, a Review Committee considered his service record for determining his suitability for retention in service in accordance with the first proviso to Rule 71(a) of the Orissa Service Code.
On the recommendation of the Review Committee the State Government by its order dated 10.11.1983 pre maturely retired the appellant from service.
The appellant filed a civil suit challenging the validity of his pre mature retirement.
The suit was transferred to the Administrative Tribunal.
The Tribunal held that the recom mendation of the Review Committee was bona fide and did not suffer from any legal infirmity.
Before this Court, it was contended that the recommenda tion of the Review Committee was vitiated as it was founded on irrelevant and inadmissible material.
It was urged that the Review Committee had considered a number of adverse remarks contained in the appellant 's service record for the remote past years, and had also considered adverse entries relating to recent years although those adverse entries had not become final.
Allowing the appeal and setting aside the order of premature retirement of the appellant, this Court, HELD: (1) The purpose of the Rule conferring power on the Government to retire Government servants prematurely is to energise 804 its machinery by 'chopping of the dead wood '.
[807C] Union of India vs J.N. Sinha, [1971] 1 SCR 791.
(2) When a Government servant is promoted to a higher post on the basis of merit and selection prior adverse entries if any contained in his service record lose their significance and those remain on record as part of past history.
It would, therefore, be unjust to curtail the service career of Government servant on the basis of those entries in the absence of any significant fail in his per formance after his promotion.
[807F] (3) If the adverse remarks awarded to a Government servant are communicated to him after several years, the object of communicating entries is defeated.
It is, there fore, imperative that the adverse entries awarded to a Government servant must he communicated to him within a reasonable period to afford him opportunity to improve his work and conduct and also to make representation in the event of the entry being unjustified.
In the instant case, belated communication of the entries resulted into denial of reasonable opportunity to the appellant to improve his performance.
[808A B] (4) The appellant 's representation against the adverse entries relating to a number of years was rejected on the ground that the representation was barred by time.
Since the communication of the adverse entries was itself highly belated, the representation against those adverse remarks should have been considered on merits and the same could not be rejected on the alleged ground of delay as the Government itself was guilty of inordinate delay in communicating the adverse remarks to the appellant.
[808D] (5) The appellant had a right to make representation against the adverse entries within six months period.
There fore, the adverse entries awarded to the appellant in the years 1981 82 and 1982 83 could not be taken into account either by the Review Committee or by the State Government in forming the requisite opinion contemplated by Rule 71(1)(a) of the Orissa Service Code, before the expiry of the period of six months.
It is settled view that it is not permissible to prematurely retire a Government servant on the basis of adverse entries, representations against which are not considered and disposed of.
[809C D, 808H 809A] Brij Mohan Chopra vs State of Punjab, ; (6) The Members of the Tribunal must follow rules of natural 805 justice in administering justice like judges.
They should not sit in judgment on their own decisions.
In the instant case Shri Gian Chand, who had administratively taken a decision as Chief Secretary against the Appellant, consid ered the matter judiciary as the Chairman of the Administra tive Tribunal, thereby he acted as a Judge of his own cause.
While it is true that there is no allegation of personal bias against Shri Gian Chand, he may have acted bona fide, nevertheless, the principles of natural justice, fair play, and judicial discipline required that he should have ab stained from hearing the appellant 's case.
[810B, 809F H]


Input:
Civil Appeal No. 2020 (NT) of 1974 From the Judgment and Order dated 14.8.1973 of the Calcutta High Court in Appeal No. 317 of 1970 T.A. Ramachandran, J. Ramamurthi and D.N. Gupta for the Appellant.
C.M. Lodha and Ms. A. Subhashini for the Respondent.
The Judgment of the Court was delivered by PATHAK, J.
This appeal by certificate granted by the High Court of Calcutta is directed against a judgment of the Division Bench of the High Court confirming on appeal the dismissal of the appellant 's writ petition.
985 The appellant, Brooke Bond & Company Ltd., now known as Brooke Bond Leibig Limited, is a sterling company carrying on business in tea with its Head Office in the United Kingdom.
The appellant has invested in the shares of other tea companies in different parts of the world, and has a hundred per cent share holding in an Indian subsidiary, Brooke Bond (India) Limited.
The appellant is assessed under the Indian Income Tax Act, and the relevant financial year is the previous year in relation to the corresponding assessment year.
For the assessment year 1955 56 the appellant was assessed on its total world income by an assessment order dated July 16, 1957 on the basis of provisional figures of its business loss including depreciation, and its income from dividends.
On the basis of those provisional figures it was assessed to a net loss of Rs.31,33,647.
As its Indian income exceeded its income outside India it was assessed as a resident.
Meanwhile, on March 28, 1957 the appellant had already been assessed for the subsequent assessment year 1956 57 in the status of a non resident, and its income of Rs.53,11,958 from dividends was assessed under the head 'Income from Other Sources '.
It is obvious that the loss determined for the assessment year 1955 56 could not be carried forward and set off against the income for the assessment year 1956 57, as the latter assessment was made subsequent to the former.
On February 12, 1958 the appellant preferred two revisions applications, one each for the assessment years 1955 56 and 1956 57, before the Commissioner of Income tax under sub section
(2) of section 33A of the Indian Income Tax Act, 1922.
In the revision application for the assessment year 1955 56 the appellant claimed that the quantum of loss determined for that year having been based on provisional figures should now be revised on the basis of the final figures certified by an Inspector of Taxes in the United Kingdom.
The appellant claimed also that the loss should be ascertained for the purpose of carrying it forward, and further that the loss should be bifurcated between an unabsorbed depreciation of Rs.40,27,853 and other loss.
In the revision application for the assessment year 1956 57 the appellant claimed a set off of the loss determined for the assessment year 1955 56 against the income of the assessment year 1956 57 on the ground that the shares held by it in tea companies constituted its trading assets and the dividend income accruing therefrom should be regarded as income from business.
It mentioned that it carried on business in tea in the United Kingdom and the investments were made in the usual course of 986 its tea business in companies also engaged in the tea business exclusively.
The revision petitions remained pending for eight years.
Meanwhile the appellant 's assessment for the assessment year 1957 58 was completed in November 1957 as a non resident, determining an income of Rs.51,85,836 received by way of dividends on its share holdings.
An appeal was taken to the Appellate Assistant Commissioner of Income Tax claiming that the loss for the assessment year 1955 56 should be carried forward and set off against the income for the assessment year 1957 58 under sub section
(2) of section 24 because both the loss and the income arose from business carried on by the appellant.
By his order dated August 14, 1958 the Appellant Assistant Commissioner dismissed the appeal holding that there would be no loss if the loss for the assessment year 1955 56 was set off against the income for the assessment year 1956 57, and that the loss could not be legally set off directly in the assessment year 1957 58.
The appellant appealed to the Income tax Appellate Tribunal and on July 1, 1966 the Appellate Tribunal set aside the order of the Appellate Assistant Commissioner and directed the Appellate Assistant Commissioner to dispose of the appeal afresh after determining whether the appellant was entitled to set off a business loss arising outside the taxable territories for the assessment year 1955 56 against the dividend income arising in the taxable territories for the assessment year 1957 58.
The Commissioner of Income Tax applied for a reference to the High Court but the Appellate Tribunal rejected the application on December 1, 1966.
On December 5, 1966 the Commissioner of Income Tax disposed of the revision applications filed by the appellant.
The revision application pertaining to the assessment year 1955 56 was allowed subject to the claim being verified in regard to the figures and calculation of depreciation by the Income Tax Officer.
The revision application pertaining to the assessment year 1956 57, however, was rejected with the observation that the dividend earned by the appellant from investments in shares of companies carrying on the tea business could not be said to be a part of the appellant 's business because the investments were not incidental to the appellant 's business activities and were not held as trading assets.
It was also stated that the companies from which the dividend was earned were not companies of which the appellant was managing agent so as to require the making of such investments for the purposes of its business as managing agents.
The Commissioner also rejected the contention of the appellant that a set off should be allowed to the extent of the unabsorbed depreciation brought forward 987 from the assessment year 1955 56 against the business income derived during the assessment year 1956 57.
The Commissioner observed that there was no business income in the assessment year 1956 57.
Thereafter the appellant filed a writ petition in the High Court of Calcutta against the disposal of his revision application for the assessment year 1956 57, but on September 22, 1969 the learned Single Judge dismissed the writ petition.
An appeal filed by the appellant was dismissed by the Division Bench of the High Court on August 14, 1973.
The Division Bench adverted to the finding of the Commissioner of Income Tax in the appellant 's revision application relating to the assessment year 1956 57 that the material placed before him did not show that the dividend earned by the appellant from its investment in the shares of different companies could be regarded as part of the appellant 's business income.
He had found that the investments in shares were not incidental to the appellant 's business activities and they were not held as trading assets.
The Division Bench held that no error of law in the Commissioner 's order had been established and consequently there was no case for interference with the rejection of the appellant 's claim for carrying forward the losses arising from its business in the assessment year 1955 56 against the dividend income for the assessment year 1956 57.
On the other contention raised by the appellant, the claim to carry forward the depreciation allowance pertaining to the business activities of the assessment year 1955 56 for deduction in the assessment proceedings of the assessment year 1956 57 the Division Bench appeared to be in favour of the appellant, but it declined to express any final opinion on the point.
The judgment of the Division Bench is under appeal before us.
At the outset learned counsel for the appellant stated before us that he would not press this appeal if we clarify that the Appellate Assistant Commissioner can proceed in the appeal relating to the assessment year 1957 58 pending before him without being influenced by the observations of the Commissioner of Income Tax and the High Court in the case relating to the assessment year 1956 57 on the aspect of carry forward of loss under sub section
(2) of section 24, and that if such clarification is not possible then we should, in this appeal, confine ourselves to the case relating to the assessment year 1956 57.
There was considerable debate on the question whether the 988 dividend income received by the appellant from its share holdings in different companies engaged in the tea business could be regarded as business income.
It is a cardinal principle of the law relating to income tax that income tax is a single charge on the total income of an assessee.
For the purpose of computation the statute recognises different classes of income which it classifies under different heads of income.
For each head of income the statute has provided the mode of computing the quantum of such income.
The mode of computation varies with the nature of the class of such income, for the deductions permissible under the law in computing the income under each head bear a particular relevance to the nature of the income.
The statute operates on the principle that it is the net income under each head which should be considered as a component of the total income.
The statute permits specified deductions from the gross receipt in order to compute the net income.
The net income under the different heads is then pooled together to constitute the total income.
The process of computation at this stage takes in the provisions relating to the carry forward and setting off of losses and of unabsorbed depreciation.
On the conclusion of the entire process of assessment what emerges is the figure of taxable income, the quantum of income which is assessed to tax.
Ordinarily when income pertains to a certain head, the source of such income is peculiar to that head, but it is not unusual that commercial considerations may properly describe the source differently.
For instance, a banking concern may hold securities in the course of its business.
The securities constitute its trading assets and income from them would in the commercial sense be regarded as business income.
However, for the purposes of computation under the income tax law the income from such securities would be computed not under the head 'Income from Business ' but under the head 'Interest on Securities '.
In United Commercial Bank Ltd., vs Commissioner of Income tax, , this Court pointed out that business income was broken up under different heads only for the purpose of computation of the total income, and that by such break up the income did not cease to be the income of the business.
The principle was followed by this Court in Commissioner of Income tax, Bombay City vs Chugandas and Co., ; and it was reiterated that business income was broken up under different heads under the Income Tax Act only for the purpose of computation of the total income, and that by breaking up the income did not cease to be the income of the business.
It was said: 989 "The heads described in section 6 and further elaborated for the purpose of computation of income in sections 7 to 10 and 12, 12A, 12AA and 12B are intended merely to indicate the classes of income: the heads do not exhaustively delimit sources from which income arises," The point was elaborated by the Court in Commissioner of Income tax, Andhra Pradesh vs Cocanada Radhaswami Bank Ltd., , where the Court was called upon to consider whether the securities owned by the assessee formed part of the trading assets of his business, and income therefrom could be described as income from business, and the Court reaffirmed that section 6 of the Indian Income Tax Act 1922, which classified the taxable income under different heads made such classification only for the purpose of computation of the net income of the assessee and "though for the purpose of computation of the income, interest on securities is separately classified, income by way of interest from securities does not cease to be part of the income from business if the securities are part of the trading assets.
Whether a particular income is part of the income from a business falls to be decided not on the basis of the provisions of section 6 but on commercial principles . . .
If it was the income of the business, section 24(2) of the Act was immediately attracted.
If the income from the securities was the income from its business, the loss could, in terms of that section, be set off against that income.
" Accordingly, the mere circumstance that the appellant showed the dividend income under the head 'Income from Other Sources ' in its returns cannot in law decide the nature of the dividend income.
It must be determined from the evidence whether having regard to the true nature and character of the income it could be described as income from business, even though it is liable to fall for computation under another head.
The principle was again applied in O.RM.M. SP.
Firm vs Commissioner of Income tax, Madras , 410.
The position on the law is clear.
But is the appellant in the present case entitled to the relief claimed by it? The appellant placed material before the Commissioner of Income tax showing that it held shares in companies carrying on the tea business 990 and that in India it enjoyed a hundred per cent share holding in the Indian subsidiary.
But in order that the share holdings in tea commpanies should be regarded as the business assets of the appellant there must be material evidence indicating that the ownership of the shareholdings is necessarily incidental to the business of tea carried on by the appellant or that the share holdings are held as business assets.
The Commissioner of Income Tax was unable to draw any conclusion in favour of the appellant in this regard, and the appellant failed to convince the High Court also.
We have given our careful consideration to the matter and except for the Indian subsidiary there is nothing to show that the investments of the appellant in the other tea companies were intended to bring, or in fact brought about, some advantage or benefit to the business carried on by the appellant.
The mere fact that the share holdings related to the tea companies is not sufficient by itself to support the submission that they were acquired to safeguard the appellant 's interest in the tea business carried on by it.
The matter is pending in appeal relating to the assessment year 1957 58 before the Appellate Assistant Commissioner and it will be open to the appellant to place further material before the Appellate Assistant Commissioner to enable him to come to an adequate and satisfactory decision.
The appellant may have a sufficient case specially in regard to the share holding possessed by it in its Indian subsidiary, but we refrain from expressing any opinion on the point and we leave it to the appellant to satisfy the Appellate Assistant Commissioner that the appellants share holdings in the Indian subsidiary and the other tea companies enures to the benefit of the business carried on by it.
An attempt was made by learned counsel for the appellant to show that the Commissioner of Income Tax had conceded in an earlier proceeding that the dividend income was income from business.
Our attention has been invited to a recital in the order of the Appellate Tribunal relating to the assessment year 1957 58 and to what has been stated by the Commissioner in his reference application against that order.
We are not satisfied from the material placed before us that the Revenue can be said to have admitted that the dividend income received by the appellant from its share holdings in other companies can be regarded as part of the appellant 's income from business.
Consequently we are unable to sustain the appellant 's challenge to the view expressed by the Division Bench of the High Court in regard to the appellant 's claim that the dividend income must be regarded as income from business.
991 The next point raised by the appellant is that the loss should be carried forward under sub section
(2) of section 24 from the assessment year 1955 56 to the assessment year 1956 57 and it is not necessary that the business carried on in the assessment year 1956 57 should be the same as that carried on in the assessment year 1955 56.
This point must also fail because it proceeds on the assumption that the shares held by the appellant can be regarded as its trading assets.
The final contention of the appellant relates to the carry forward of unabsorbed depreciation under sub section
(2) of section 10.
The Division Bench appeared to be of the tentative view that the appellant was entitled to the carry forward claimed by it, but it did not express any final opinion as it had decided to decline relief to the appellant on the ground that the assessment for the assessment year 1956 57 had already been closed by the Revenue when the assessment for the assessment year 1955 56 was being made and the grant of relief would have its consequence on the assessment for the assessment year 1957 58, in respect of which an appeal was pending.
The writ petition was directed against the order of the Commissioner of Income Tax made upon the revision application filed by the appellant in respect of the assessment year 1956 57, and the High Court could have directed the Commissioner to grant appropriate relief for the assessment year 1956 57.
The Commissioner was not concerned with the proceeding relating to the assessment year 1957 58.
That was a matter pending in appeal before the Appellate Assistant Commissioner.
The point could have been considered by the Commissioner in the revision application for the assessment year 1956 57.
Merely because relief given by the Commissioner in that regard in the proceeding for the assessment year 1956 57 could have its consequence upon the proceeding for the assessment year 1957 58 then pending in appeal before the Assistant Appellate Commissioner, could not bring the case within proviso (b) to sub section
(1) of section 33A of the Indian Income Tax Act.
It may be that the same point was the subject of the appeal, but the point agitated before the Commissioner was with reference to the assessment year 1957 58.
It could not debar the Commissioner from considering the same point in relation to the assessment year 1956 57.
We need express no opinion at this stage on the view tentatively expressed by the Division Bench of the High Court that the appellant 's claim to the carry forward of unabsorbed depreciation from the assessment year 1955 56 to the assessment year 1956 57 is vaild or not.
As we have noted, the view taken by the High Court was tentative only and not its final opinion.
Indeed, no submission was made on behalf of the Revenue before us on the point.
992 We shall concern ourselves merely with the correctness of the Division Bench refusing to grant relief after it reached the tentative finding that there was merit in the appellant 's claim to the carry forward of unabsorbed depreciation.
In our opinion, the order of the Commissioner disposing of the revision application for the assessment year 1956 57 should have been set aside by the Division Bench and the Commissioner should have been directed to consider the claim on its merits.
We make that direction now.
At the same time, we make it clear that it will be open to the Revenue to contend on the merits that the appellant is not entitled to the carry forward of unabsorbed depreciation.
The appeal is allowed in so far only that the order of the Division Bench and of the learned Single Judge as well as the order of the Commissioner of Income Tax on the revision application for the assessment year 1956 57 are set aside in regard to the claim of the appellant to the carry forward of unabsorbed depreciation, and the Commissioner is directed to dispose of the revision application in respect of that claim afresh.
As to the rest of the reliefs the appeal is dismissed.
In the circumstances there is no order as to costs.
A.P.J. Appeal allowed in part.

Output:
The appellant, a sterling company carrying on business in tea with its Head office in the United Kingdom, invested in the shares of other tea companies in different parts of the world, and had a hundred per cent share holding in an Indian subsidiary.
The appellant was assessed under the Indian Income Tax Act 1922.
For the assessment year 1955 56 the appellant was assessed on its total world income on the basis of provisional figures of its business loss including depreciation, and its income from individuals.
As its Indian income exceeded its income outside India it was assessed as a resident.
Meanwhile the appellant had already been assessed for the subsequent assessment year 1956 57 in the status of a 'non resident ' and its income from dividends was assessed under the head 'Income from other Sources '.
The loss determined for the assessment year 1955 56 could not be carried forward and set off against the income for the assessment year 1956 57, as the latter assessment was made subsequent to the farmer.
The appellant preferred two revision applications, one each for the assessment years 1955 56 and 1956 57 under sub section (2) of section 33A.
In the revision application for the assessment year 1955 56, the appellant claimed that the quantum of loss determined for that year having been based on provisional figures should be revised on the basis of final figures certified by an Inspector of Taxes in the United Kingdom, that the loss should be ascertained for the purpose of carrying it forward, and that the loss should be bifurcated between an unabsorbed deprecia 981 tion and other loss.
In the revision application for the assessment year 1956 57, the appellant claimed a set off of the loss determined for the assessment year 1955 56 against the income of the assessment year 1956 57 on the ground that the shares held by it in different companies constituted its trading assets and the dividend income accruing therefrom should be regarded as income from accruing therefrom should be regarded as income from business.
During the pendency of these revision petitions the assessment for the assessment year 1957 58 was completed as a non resident, and the income was determined as receipt by way of dividends on its share holdings.
In the appeal to the Appellate Assistant Commissioner, it was claimed that the loss for the assessment year 1955 56 should be carried forward and set off against the income of the assessment year 1957 58 under sub section
(2) of section 24 because both the losses and the income arose from business carried on by the appellant, but the appeal was dismissed holding that there would be no loss if the loss for the assessment year 1955 56 was set off against the income for the assessment year 1956 57 and that the loss could not be legally set off directly in the assessment year 1957 58.
In further appeal, the Income Tax Appellate Tribunal set aside the order of the Appellate Assistant Commissioner and directed it to dispose of the appeal afresh after determining whether the appellant was entitled to set off a business loss arising outside the taxable territories for the assessment year 1955 56 against the dividend income arising in the taxable territories for the assessment year 1957 58.
The reference to the High Court was declined by the Appellate Tribunal.
The revision application pertaining to the assessment year 1955 56 was allowed subject to the claim being verified in regard to the figures and calculation of depreciation by the Income Tax Officer.
The revision application pertaining to the assessment year 1956 57, however, was rejected holding that the dividends earned by the appellant from the investments in shares of companies carrying on the tea business could not be said to be a part of the appellant 's business because the investments were not incidental to the appellant 's business activities and were not held as trading assets, that the companies from which the dividend was earned were not companies of which the appellant was managing agent, that a set off cannot be allowed to the extent of the 982 unabsorbed depreciation brought forward from the assessment year 1955 56 against the business income derived during the assessment year 1956 57, and that there was no business income in the assessment year 1956 57.
A Petition under article 226 filed by the appellant against the disposal of his revision application for the assessment year 1956 57 was dismissed by a Single Judge, and the appeal against that order as well as dismissed.
In the appeal to this Court on behalf of the appellant it was contended: (1) that if this Court clarified that the Appellate Assistant Commissioner can proceed in the appeal relating to the assessment year 1957 58 pending before him without being influenced by the observations of the Commissioner of Income Tax and the High Court in the case relating to the assessment year 1956 57 on the aspect of carry forward of loss under sub section
(2) of section 24, the appeal would not be pursued, and that if such clarification is not possible then this Court should confine itself to the case relating to the assessment year 1956 57; (2) that the Commissioner of Income Tax had conceded in an earlier proceeding that the dividend income was income from business; (3) that the loss should be carried forward under sub section
(2) of section 24 from the assessment year 1955 56, to the assessment year 1956 57 and it is not necessary that the business carried on in the assessment year 1956 57 should be the same as that carried on in the assessment year 1955 56, and (4) that the claim of the appellant to carry forward of unabsorbed depreciation under sub section
(2) of section 10 should be allowed.
Partly allowing the Appeal, ^ HELD: 1.
The order of the Division Bench and of the Single Judge as well as the order of the Commissioner of Income Tax on the revision application for the assessment year 1956 57 are set aside in regard to the claim of the appellant to the carry forward of unabsorbed depreciation and the Commissioner is directed to dispose of the revision application afresh.
As to the rest of the reliefs the appeal is dismissed.
[992C D] 2.
Income tax is a single charge on the total income of an assessee.
For the purpose of computation the statute recognises different classes of income which it classifies under different heads of income.
For each head of income the statute has provided the mode of computing the quantum of such income.
The mode of computation varies with 983 the nature of class of such income, for the deductions permissible under the law in computing the income under each head bear a particular relevance to the nature of the income.
[988B C] 3.
The statute operates on the principle that it is the net income under each head which should be considered as a component of the total income.
The statute permits specified deductions from the gross receipt in order to compute the net income.
The net income under the different heads is then pooled together to constitute the total income.
The process of computation at this stage takes in the provisions relating to the carry forward and setting off of losses and of unabsorbed depreciation.
On the conclusion of the entire process of assessment what emerges is the figure of taxable income, the quantum of income which is assessed to tax.
[988C E] 4.
Ordinarily when income pertains to a certain head, the source of such income is peculiar to that head, but it is not unusual that commercial considerations may properly describe the source differently.
For instance, a banking concern may hold securities in the course of its business.
The securities constitute its trading assets and income from them would in the commercial sense be regarded as business income.
However, for the purposes of computation under the income tax, the income from such securities would be computed not under the head 'Income from Business ' but under the head 'Interest on Securities '.
[988E G] 5(i) Business income is broken up under different heads only for the purpose of computation of the total income, and that by such breakup the income does not cease to be the income of the business.
[988G] 5(ii) Section 6 of the Indian Income Tax Act 1922, which classified the taxable income under different heads made such classification only for the purpose of computation of the net income of the assessee.
[989C] United Commercial Bank Ltd. vs Commissioner of Income Tax, ; Commissioner of Income Tax, Bombay City vs Chugandas and Co., ; ; Commissioner of Income tax, Andhra Pradesh vs Cocandada Radhaswami Band Ltd., and O.RM.M.SP.SV.
Firm vs Commissioner of Income tax, Madras, , 410 followed.
The mere circumstance that the appellant showed the dividend income under the head 'Income from other Sources ' in its returns can 984 not in law decide the nature of the dividend income.
It must be determined from the evidence whether having regard to the true nature and character of the income it could be described as income from business, even though it is liable to fall for computation under another head.
[989F G] 7.
In the instant case, the appellant placed material before the Commissioner of Income tax showing that it held shares in companies carrying on the tea business, and that in India it enjoyed a hundred per cent share holding in the Indian subsidiary.
But in order that the share holdings in tea companies should be regarded as the business assets of the appellant there must be material evidence indicating that the ownership of the share holdings is necessarily incidental to the business of tea carried on by the appellant or that the share holdings are held as business assets.
[989H; 990A B] 8.
From the material placed before the Court, the Revenue cannot be said to have admitted that the dividend income received by the appellant from its share holdings in other companies can be regarded as part of the appellant 's income from business.
[990F G] 9.
The loss cannot be carried forward under sub section
(2) of section 24 from the assessment year 1955 56 to the assessment year 1956 57 because the shares held by the appellant cannot be regarded as its trading assets.
[991A B]


Input:
Appeal No. 676 of 1962.
Appeal by special leave from the judgment and decree dated September 5, 1961, of the Andhra Pradesh High Court at Hyderabad in Special Appeal No. 3 of 1961.
K. Bhimsankaram, A. Ranganadham Chetty,A. Vadavalli, E. Udayarathnam and A. V. Rangam, for the appellant.
37 A. V. Viswanatha Sastri and P. Thiagarajan, for respondent No. 1.
K. R. Chaudhri, V. C. Prashar and Amarsingh Chaturvedi for respondent No. 2. 1963.
February 12.
J. This is an appeal against a judgment and order of the High Court of Andhra Pradesh confirming.
an order of the Election Tribunal, Hyderabad by which the Tribunal dismissed an election petition filed by the present appellant.
By that petition this appellant sought a declaration that the election of three persons, the present respondent, Seetharam Reddy, one Anandam and M. Ataur Rahman be declared void and that he, the petitioner, be declared as duly elected to the Legislative Council of the Andhra Pradesh from Telangana Graduates Constituency.
In this appeal we are no longer concerned with the question of validity of elections of Mr. Anandam or Mr. M. Ataur Rahman but only with that of the respondent Seetharam Reddy.
The appellant challenges the decision of the High Court mainly on the ground that in reaching its conclusion on 'the vital question of the age of Seetharam Reddy on the date of election the High Court took into consideration evidence which was not legally available for such consideration.
Though a large number of objections were raised in the petition to contest the validity of Seetharam Reddy 's election, only four of them were ultimately pressed before the Election Tribunal, viz., (1) That Seetharam Reddy was disqualified to be chosen to fill a seat in the Legislative Council under article 173 (b) of the Constitution his age being 38 below 30 years on the relevant date; (2) That the election was vitiated by undue influence exercised on the voters by some Ministers of the State of Andhra Pradesh ; (3) That the secrecy of the ballot was not maintained, and (4) That the election was void on account of improper deletion of names of voters in the final list.
All these objections were rejected by the Election Tribunal which accordingly dismissed the petition.
On appeal, the High Court confirmed the findings of the Election Tribunal on all these points and dismissed the appeal.
Faced with the position that the correctness of these findings which are all findings of facts is not open to challenge before this Court in this appeal by special leave, the appellant has raised the contention that the High Court 's decision on the question of age of Seetharam Reddy was vitiated by the error of law in that additional evidence was admitted and considered by the High Court without complying with the provisions of law.
It appears that a considerable amount of oral and documentary evidence was adduced before the Tribunal on this question of Seetharam Reddy 's age.
While the petitioner tried to establish that Seetharam Reddy was born.
in October 1931, Seetharam Reddy tried to establish that he was born sometime in 1928.
The Tribunal rejected as unworthy of credit the oral testimony adduced by either side.
It also rejected most of the documentary evidence, including R 5 and R 6, R 11 and R 12.
R 5 is a birth register; R 6 is an entry therein, R 11 is a certificate purporting to be issued by the Head Master of the Muslim High School, Kurnool, in respect of the age of the respondent Seetharam Reddy while R 12 is an application said to have been made at the time of his admission to this school.
The 39 Tribunal 's finding was that Seetharam Reddy did not study in the Kurnool Muslim High School.
The Tribunal also rejected the documentary evidence produced on behalf of the petitioner seeking to show that the respondent Seetharam Reddy was born on October 10, 1931.
Ultimately, however, the Tribunal decided the issue as regards the age against the petitioner on the basis of certain documents in con nection with the proceedings before the judicial Committee of the Privy Council which showed that the respondent Seetharam Reddy was a major by the year 1356 Fasli.
It appears that in that year an appeal was pending in the judicial Committee of the Privy Council which had arisen out of a suit regarding the adoption of Seetharam Reddy by one Tuisamma, and the party who contested the alleged adoption filed a petition to declare him (Seetbaram Reddy) as a major.
Exhibit R 10 is that petition.
After notice was served a power (wakalatnama) was filed by Seetharam Reddy as a major in the appeal.
In this wakalatnama (exhibit R 3) Seetharam Reddy 's age was given as 19 years.
Exhibit R 13 was the notice issued to Seetharam Reddy in those proceed ings.
The Tribunal was of opinion that the genuineness of these documents, Exhibits R 3, R 10 and R 13, could not be q questioned and it was clear that the respondent was treated as a major in the proceedings before the judicial Committee from and after 1356 Fasli.
That showed, according to the Tribunal, that he was not less than 30 years of age on the date of election or nomination.
The High Court also came to the same conclusion on this issue as regards Seetharam Reddy 's age.
In coming to this conclusion it has relied not only on the wakalatnama exhibit R 3 mentioned above but also on four other documents, viz., Exs.
R 5 and R 6, which the Tribunal rejected as unreliable and 40 Exs.
R 19 and R 20 which were not tendered in evidence before the Tribunal but came before the High Court as additional evidence.
The appellant contends that the High Court acted without jurisdiction in admitting additional evidence.
We are clearly of opinion that even if it was found that the High Court erred in taking the additional evidence that would not be a case of lack of jurisdiction but would be an error in the exercise of jurisdiction.
As was pointed out however by this Court in Arjan Singh vs Kartar Singh (1).
"The discretion to receive and admit additional evidence is not an arbitrary one, but is a judicial one circumscribed by the limitations specified in Order XLI, rule 27, of the Code of Civil procedure.
" The question whether in the present case the High Court exercised the discretion judicially has therefore to be examined by us.
Section 107 of the Code of Civil Procedure ' empowers the appellate court "to take additional evidence or to require such evidence to be taken," "subject to such conditions and limitations as may be prescribed.
" Rule 27 of Or.
41 of the Code of Civil Procedure prescribes the conditions and limitations in the matter.
The Rule first lays down that the parties to an appeal shall not be entitled to produce additional evidence, whether oral or documentary, in the appellate court.
It then proceeds to lay down two classes of cases where the appellate court may allow additional evidence to be produced.
One class is where the Court appealed from has refused to admit evidence which ought to have been admitted.
The other class is where the appellate court requires such additional evidence for itself either to enable it to pronounce judgment or for any other substantial cause.
The second class of the rule requires that when additional evidence is allowed to be produced by an appellate court the Court shall record the reason for its admission.
(1) ; 41 The additional evidence that was produced in this case had not been tendered in evidence before the Election Tribunal and so this case does not fall within the first class mentioned above.
Obviously, therefore, the High Court allowed the. production of this evidence on its own requirement.
It is contended before us on behalf of the appellant that the learned judges made the order mechanically without applying their minds to the requirements of Or.
41 r. 27 of the Code of Civil Procedure.
Support for this contention is sought from the fact that the High Court did not record its reasons for the admission of the additional evidence as required by the second clause of the rule.
The importance of this provision for recording of the reasons for admission of additional evidence has been emphasized in several cases (Vide., Sreemanchunder vs Gopalchunder (1) Manmohan Das vs Mutsammat Ramdei (2)) .
It is very much to be desired that the courts of appeal should not overlook the provisions of cl.
(2) of the Rule and should record their reasons for admitting additional evidence.
We are not prepared, however, to accept the contention of the appellant that the omission to record the reason vitiates the admission of the evidence.
Clearly, the object of the provision is to keep a clear record of what weighed with the appellate court in allowing the additional evidence to be produced whether this was done on the ground (i) that the court appealed from had refused to admit evidence which ought to have been admitted, or (ii) it allowed it because it required it to enable it to pronounce judgment in the appeal or (iii) it allowed this for any other substantial cause.
Where a further appeal lies from the decision of the appellate court such recording of the reasons is necessary and useful also to the court of further appeal for deciding whether the discretion under the (1) [1866] 11 M.1.A. 28 (2) 42 rule has been judicially exercised by the court below.
The omission to record the reason must therefore be treated as a serious defect.
Even so, we are unable to persuade ourselves that this provision is mandatory.
For, it does not seem reasonable to think that the legislature intended that even though in the circumstances of a particular case it could be definitely ascertained from the record why the appellate court allowed additional evidence and it is clear that the power was properly exercised within the limitation imposed by the first clause of the Rule all that should be set at naught merely because the provision in the second clause was not complied with.
It may be mentioned that as early as 1885 when considering a similar provision in the corresponding section of the Code of 1882, viz., section 586, the High Court of Calcutta held that this provision for recording reasons is merely directory and not imperative vide Gopal Singh vs Jhakri Rai(1).
We are aware of no case in which the correctness of this view has been doubted.
It is worth noticing that when the 1908 Code was framed and Or.
41 r. 27 took the.
place of the old section 568, the legislature was content to leave the provision as it was and did not think it necessary to say anything to make the requirement of recording reasons imperative.
It is true that the word " 'shall" is used in R. 27 (2); but that by itself does not make it mandatory.
We are therefore of opinion that the omission of the High Court to record reasons for allowing additional evidence does not vitiate such admission.
Nor are we prepared to agree with the learned Counsel that this omission justifies the conclusion that the High Court acted mechanically in the matter, without applying its mind to the requirements of the Rule.
The record before us shows that the hearing of the appeal before the High Court commenced on July 18, 1961 and after the (1) Cal.
43 appellant 's Counsel had concluded his arguments the respondent 's Counsel started addressing the Court.
He continued his arguments on the next date, i.e., July 19.
On the next date, i.e., July 20, 1961 an application was made on behalf of the respondent, Seetharam Reddy, praying that two registers of admission and withdrawals of the Government Muslim High School, Kurnool, be received and admitted as additional evidence in the appeal.
(It may be stated that the petition itself bears the date, July 18, but the supporting affidavit bears the date 20 July).
It was stated on affidavit that both these registers had been summoned along with the other documents by the appellant, Venkataramiah, and were actually produced before the Election Tribunal by the Head Master and further that these had been transmitted to the High Court along with the records of the case.
It was stated that these documents had "an important bearing" upon the case and were "required to be looked into" to arrive at a just and correct conclusion in regard to Issue No. 1.
On the following date i. e., of July 21, the appellant Venkataramiah put in his counter affidavit objecting to the respondent 's prayer and in para, 6 of this counter affidavit we find the following statement : "In the circumstances it is submitted that the provisions of Or.
41 Rule 27 C. P. C., are not complied with.
It was not offered as evidence before the Tribunal.
Admittedly it was available at the time of the trial and it is not the case of the petitioner that notwithstanding exercise of due diligence.
, was not within his knowledge or could not be produced by him at the time when the decision was pronounced by the Tribunal.
It is not in the interest ofjustice nor it is necessary to enable this Court to pronounce judgment to admit them as additional evidence.
On the other 44 hand, the admission of the registers as evidence would enable the party to go behind his case stated by him in his counter affidavit before the Election Tribunal and set up altogether an inconsistent case.
Hence the said Admission Registers are neither relevant nor material.
" The High Court passed the order for the taking of additional evidence on the same date.
How the High Court considered the matter is best shown by a passage from the judgment pronounced by the Court in the appeal.
After pointing out that the Tribunal "was not prepared to place any reliance on Exhibits R 11 and R 12 and was of the opinion that the 1st respondent did not study in Government Mohammadan High School, Kurnool, and that Exhibit R 12 was concocted, if it was to be argued that it relates to the present 1st respondent," the judgment proceeds thus : "During the course of the arguments before us, it was noticed that two admission registers relating to the High School for the relevant period were in fact summoned for by the learned Counsel for the petitioner and were produced be fore the Tribunal.
For some reason, which is not clear to us, these registers were not proved and marked as exhibits.
These registers were sent to the High Court for hearing of the above appeal and they were placed before us.
We are told that the 1st respondent also applied that these registers may be summoned for from the High School.
But when he has realised that the petitioner himself has summoned for them, it was not necessary for the 1st respondent to summon for them again.
Whatever it be, these registers were before the Tribunal and are before us.
But as neither party could rely upon them without their being proved and exhibited, the 1st respondent filed C.M.P. No. 7115/61 under Or.
41 r.27 and section 151 C.P.C. to receive them as 45 evidence and mark the registers, as exhibits.
By our order dated 21 7 1961 we permitted the 1st respondent in the appeal to prove these documents before the Election Tribunal.
We also directed that the appellant is at liberty to cross examine the persons, who might be summoned to prove these documents.
We also directed the Tribunal to record the evidence adduced in proof of these two registers and submit the same to the High Court for consideration in the above appeal.
The Tribunal accordingly re.
called R.W.8, the Head Master, Government Muslim High School, Kurnool, and also examined R.W.10, the Head Master of the same school for the years 1936 to 1945.
The Register of Admissions and Withdrawals relating to the School from 7 7 1919 to 15 1 1938 is marked as exhibit R 19 and the register from 30 6 1926 to 14 2 1949 is marked as Exhibit R 20.
The entries in the two registers relating to the 1st respondent are Exhibits R 21 and R 24.
" In view of what the High Court has stated in this passage it is not possible to say that the High Court made the order for admission of additional evidence without applying its mind.
It seems clear that the High Court thought, on a consideration of the evidence, in the light of the arguments that had been addressed already before it that it would assist them to arrive at the truth on the question of Seetharam Reddy 's age if the entries in the admission registers of the School were made available.
It was vehemently urged by the learned Counsel for the appellant that there was such a volume of evidence before the High Court that it could not be seriously suggested that the Court required any additional evidence "to enable it to pronounce judgment".
The requirement, it has to be remembered, was the requirement of the High Court, and it will not be right for us to examine the evidence to find out whether we would have 46 required such additional evidence to enable ""us" to pronounce judgment.
Apart from this, it is well to remember that the appellate court has the power to allow additional evidence not only if it requires such evidence "to enable it to pronounce judgment" but also for " 'any other substantial cause.
" There may well be cases where even though the court finds that it is able to pronounce judgment on the state of the record as it is, and so, it cannot strictly say that it requires additional evidence " 'to enable it to pronounce judgment," it still considers that in the interest of justice something which remains obscure should be filled up so that it can pronounce its judgment in a more satisfactory manner.
Such a case will be one for allowing additional evidence "for any other substantial cause" under R 27(1) (b) of the Code.
It is easy to see that such requirement of the 'Court to enable it to pronounce judgement or for any other substantial cause is not likely to arise ordinarily unless some inherent lacuna or defect become apparent on an examination of the evidence.
That is why in Parsotim 's case (1), the Privy Council while discussing whether additional evidence can be admitted observed: "It may be required to enable the Court to pronounce judgment, or for any other substantial cause, but in either case it must be the Court that requires it.
This is the plain grammatical reading of the sub clause.
The legitimate occasion for the exercise of this discretion is not whenever before the appeal is heard a party applies to adduce fresh evidence, but "when on examining the evidence as it stands,.
some inherent lacuna or defect becomes apparent.
" As the Privy Council proceeded to point out: "It may well be that the defect may be pointed out by a party, or that a party, may (1) (1931) L.R. 58 I.A. 254.
47 move the Court to supply the defect, but the requirement must be the requirement of the Court upon its appreciation of the evidence as it stands.
" We are satisfied that in the present case the High Court allowed additional evidence to be admitted as it required such evidence either to enable it to pronounce judgment or for any other substantial cause within the meaning of Rule 27(1)(b) of Or.
41 of the Code.
The contention that the decision of the High Court on the question of the respondent 's age was vitiated by reason of it being based on inadmissible evidence, must therefore fail.
Another difficulty in the appellant 's way may also be mentioned.
As has been said above, the appellant did file before the High Court a petition objecting to the reception of additional evidence.
We find it stated however in the High Court 's order refusing the application for a certificate under Art .
133 (1)(c) of the Constitution that no objection that the requirements of Or. 41 r. 27.
C.P.C., were not satisfied, was raised either at the time when the court directed the Tribunal to record the statements or at the time of the hearing of the appeal.
This order was passed by the learned Chief justice and Mr. justice Chandrasekhara Sastry, who had made the order allowing admission of additional evidence and also heard the appeal.
We are bound to hold therefore that though the appellant did make an application objecting to the admission of additional evidence he did not press that application.
On the principle laid down in Jagarnath Pershad vs Hanumam Pershad (1), that when additional evidence was taken with the assent of both sides or without objection at the time it was taken, it is not open to a party to complain of it later on, the appellant cannot now be heard to say that the (1) (1909) L.R. 36 I.A. 221.
48 additional evidence was taken in this case in breach of the provisions of law.
There is nothing therefore that would justify us in interfering with the findings of facts on which the High Court based its decision.
The appeal is accordingly dismissed with costs.
Appeal dismissed.

Output:
The appellant challenged the validity of election of respondent on the grounds that he was below 30 years on the relevant date, that his election was vitiated by undue influence exercised on the voters by some Ministers of the State, that the secrecy of ballot was not maintained and that the election was void on account of improper deletion of names of voters from the final list.
All the objections were rejected by the Election Tribunal which dismissed the election petition.
On appeal, the High Court confirmed the findings of the Election Tribunal and dismissed the appeal.
The appellant came to this Court by special leave.
The appellant challenged the decision of the High Court mainly on the ground that in reaching its conclusion on the question of age of the respondent on the date of election, the High Court took into consideration evidence which was not legally available for consideration and that the additional evidence was admitted without complying with the provisions of law.
Held, that the High Court allowed additional evidence to be admitted as it required that evidence either to enable it to pronounce judgment or for any other substantial cause within the meaning of R. 2 7 (1) (b) of 0.
41 of the Code of Civil Procedure.
It could not be said that the High Court made the order for admission of additional evidence without applying its mind.
The appellate court has power to allow additional evidence not only if it requires such evidence "to enable it to 36 pronounce judgment" but also for "any other substantial cause.
" There may be cases where even though the court finds that it is able to pronounce judgment on the state of the record as it is and so it cannot strictly say that it requires additional evidence "to enable it to pronounce judgment," it still considers that in the interest of justice something which remains obscure should be filled up so that it can pronounce its judgment in a more satisfactory manner.
Such a case will be one for allowing additional evidence "for any other substantial cause.
" Held, also, that the omission of the High Court to record the reasons for allowing additional evidence does not vitiate such admission.
The provision is not mandatory although where a further appeal lies from the decision of the appellate Court, the recording of the reasons may be necessary and useful to the Court of further appeal for deciding whether the discretion had been judicially exercised by the Court below or not and the omission to record the reasons must be treated as a serious defect.
When additional evidence was taken with the assent of both sides or without objection at the time it was taken, it is not open to a party to complain of it later on.
As the appellant did not press his application against the admission of additional evidence, the objection must be over ruled.
Arjan Singh vs Kartar Singh.
[1951) section C. R. 258, Sreemanchunder vs Gopalchunder, (1866) 11 M. 1.
A. 28 Manmohan Dag vs Musammat Ramdie Gopal Singh vs Jhakri Rai, (1885) 1.
L. R. , Parsotim vs Lal Mohar, (1931) L. R. 58 I.A. 254 and Jagamath Prasad vs Hanuman Pershad (1909) L. R. 36 I.A. 221, referred to.