iminal Appeal No. 48 of 1954.

1303 Appeal by Special Leave granted by the Supreme Court by its Order dated the 31st July 1953 from the Judgment and Order dated the 15th May 1953 of the High Court of Judicature for the State of Pepsu at Th, Patiala in Criminal Appeal No. 140 of 1952 arising out of the Judgment and Order dated the 31st March 1952 of the Court of Magistrate 1st Class, Patiala in Challan Case No. 160/102 of 1951.

Jai Gopal Sethi, (Naunit Lal, with him) for the appellant.

N. section Bindra, (Porus A. Mehta and P. G. Gokhale, with him) for the respondent.

February 28.

The Judgment of the Court was delivered by VENKATARAMA AYYAR J.

The appellant was a Sub Divisional Officer in the Public Works Department, Pepsu, and was, at the material dates,, in charge of certain works at a place called Karhali.

It was part of his duties to disburse the wages to the workmen employed in the works, and the procedure usually followed was that be drew the amount required from the treasury, and paid the same to the emplo yees against their signatures or thumb impressions in the monthly acquittance roll.

In the roll for April 1951, one Parma was mentioned as a khalasi (menial servant), and a sum of Rs. 51 shown as paid to him for his wages, the payment being vouched by thumbimpression.

The case of the prosecution was that there was, in fact, no person of the name of Parma, that the thumb impression found in the acquittance roll was that of the appellant himself, that he had included a fictitious name in the acquittance roll, with intent to himself draw the amount, and that by this expedient he had received Rs. 51 and misappropriated the same.

The First Class Magistrate of Patiala, before whom the appellant was put up for trial, framed charges against him under section 465 of the Indian Penal Code for forging the thumb impression of Parma, and under section 409 of the Indian Penal Code for criminal misappropriation of Rs. 51, and after a full trial, 167 1304 acquitted him.

He held on the evidence that "there was a khalasi Parma by name in the service of the accused at Kehrauli", and that though the thumbimpression in the acquittance roll was that of the appellant, the prosecution had not established that the amount drawn by him did not reach the hands of Parma.

Against this judgment, there was an appeal by the State to the High Court of Pepsu, which held that proof that the thumb impression in the acquittance roll was that of the appellant was sufficient, ,.when taken along with other circumstances, to establish his guilt, and accordingly convicted him both under section 465 and section 409 of the Indian Penal Code.

This appeal by special leave is directed against this judgment.

In support of " the appeal it is argued by Mr. Jai Gopal Sethi that the conviction of the appellant is illegal, as sanction had not been obtained under section 197 (1) of the Code of Criminal Procedure for his prosecution, that the evidence on record is insufficient to establish an offence either under section 465 or section 409 of the Indian Penal Code and that there having been an acquittal of the appellant by the trial Magistrate, the materials on record did not justify a reversal of that verdict by the appellate Court.

The question of sanction under section 197 (1) of the Code of Criminal Procedure may be taken up first for consideration, as it goes to the root of the matter.

The facts bearing on this question are that there was an application by the Department for sanction to prosecute the appellant for an offence under section 409, and that, the Chief Secretary, Home Department, sent the communication, Exhibft PX, stating that he had been "directed to convey sanction of the Government to his prosecution".

In view of this, no question was raised before the trial Magistrate or the High Court that the prosecution was bad for want of sanction.

But after the disposal of the appeal by the High Court, it was discovered that, in fact, there was no order of the Government sanctioning the prosecution, and that the Chief Secretary had committed a mistake in sendidg the communication, Exhibit PX.

1305 The position, therefore, is that the prosecution which has resulted in the conviction of the appellant was initiated without any sanction under section 197(1) of the Code of Criminal Procedure and if sanction under that section is necessary, as contended for by Mr. Sethi, then the entire proceedings including the conviction must be quashed.

According to the respondent, however, the main charge against the appellant is under section 409, and no sanction is required for a prosecution under that section.

The point for decision is whether sanction under section 197 (1) of the Code of Criminal Procedure is necessary for prosecuting the appellant under section 409.

There has been considerable divergence of judicial opinion on the scope of section 197(1) of the Code of Criminal Procedure.

The question has latterly been the subject of consideration by the highest Courts in this country, and by the Privy Council, and the position may now be taken to be fairly well settled.

Hori Ram Singh vs Emperor(1) is a decision of the Federal Court on the necessity for sanction under section 270 of the Government of India Act, 1935, which is similar in terms to section 197(1) of the Code of Criminal Procedure.

The facts in that case were that a Sub Assistant Surgeon was charged under section 409 with having dishonestly removed certain medicines from a hospital which was under his charge, to his own residence, and under section 477 A, with having failed to enter them in the stock book.

The sanction of the Government had not been obtained for the prosecution under section 270 of the Government of India Act, and the point for decision was whether it was necessary.

It was held that the charge under section 477 A required sanction, as "the official capacity is involved in the very act complained of as amounting to a crime"; but that no sanction was required for a charge under section 409, because "the official capacity is material only in connection with the 'entrustment ' and does not necessarily enter into the later act of misappropriation or conversion, which is the act complained of".

(1) 1306 In the course of his judgment, Varadachariar, J. discussed the scope of section 197(1) of the Code of Criminal Procedure and after observing that the decisions on that section were not uniform, proceeded to group them under three categories those which had held that sanction was necessary when the act complained of attached to ' the official character of the person doing it, those which had held that it was necessary in all cases in which the official character of the person gave him an opportunity for the commission of the crime, and those which had held it necessary when the offence was committed while the accused was actually engaged in the performance of official duties.

The learned Judge expressed his agreement with the first of the three views.

In H. H. B. Gill vs The King(1), the question arose directly with reference to section 197(1) of the Code of Criminal Procedure.

There, the accused was charged under section 161 with taking bribes, and under section 120 B with conspiracy.

On the question whether sanction was necessary under section 197(1) it was held by the Privy Council that there was no difference in scope between that section and section 270 of the Government of India Act, 1935, and approving the statement of the law by Varadachariar, J. in Hori Ram Singh vs Emperor(2), Lord Simonds observed: "A public servant can only be said to act or to purport to act in the discharge of his official duty, if his act is such as to lie within the scope of his official duty. .

The test may well be whether the public servant, if challenged, can reasonably claim that, what he does, he does in virtue of his office".

It was accordingly held that as the acts with which the accused was charged could not be justified as done by virtue of his office, no sanction was necessary.

The view taken in H. H. B. Gill vs The King(1) was followed by the Privy Council in A16 ert West Meads vs The King( '), and reaffirmed in Phanindra Chandra vs (1) [1948] L.R. 75 I.A. 41.

(2) (3) [1948] L.,R. 70 I.A. 185, 1307 The King(1), and adopted by this Court in R. W. Mathams V. State of We8t Bengal(1).

The result of the authorities may thus be summed up: It is not every offence committed by a public servant that requires sanction for prosecution under section 197(1) of the Code of Criminal Procedure; nor even every act done by him while he is actually engaged in the performance of his official duties; but if the act complained of is directly concerned with his official duties so that, if questioned, it could be claimed to have been done by virtue of the office, then sanction would be necessary; and that would be so, irrespective of whether it was, in fact, a proper discharge of his duties, because that would really be a matter of defence on the merits, which would have to be in vestigated at the trial, and could not arise at the stage of the grant of sanction, which mu_t precede the institution of the prosecution.

It is conceded for the respondent that on the principle above enunciated, sanction would be required for prosecuting the appellant under section 465, as the charge was in respect of his duty of obtaining signatures or thumb impressions of the employees before wages were paid to them.

But he contends that misappropriation of funds could, under no circumstances, be said to be within the scope of the duties of a public servant, that he could not, when charged with it, claim justification for it by virtue of his office, that therefore no sanction under section 197(1) was necessary, and that the question was concluded by the decisions in Hori Ram Singh vs Emperor(1) and Albert We8t Meads vs The King(1), in both of which the charges were of criminal misappropriation.

We are of opinion that this is too broad a statement of the legal position, and that the two decisions cited lend no support to it.

In our judgment, even when the charge is one of misappropriation by a public servant, whether sanction is required under section 197(1) will depend upon the facts of each case.

If the acts complained of are so integrally connected with the duties attach (1) [1949] L.R. 76 I.A. 10.

(3) (2) [1955] 1 S.O.R. 216.

(4) [1948] L.R. 75 I.A. 180, 1308 ing to the office as to be inseparable from them, then sanction under section 197(1) would be necessary; but if there was no necessary connection between them and the performance of those duties) the official status furnishing only the occasion or opportunity for the acts, then no sanction would be required.

Quite recently, this Court had to consider in Shreekantiah Ramayya Munipalli vs The State of Bombay(1) the necessity for sanction under section 197(1), when the charge was one of misappropriation under section 409.

There, the law was laid down in the following terms: "The section has content and its language must be given meaning.

What it says is 'When any public servant. . is accused of any offence alleged to have been committed by him while acting or purporting to act in the discharge of his official duty. .

We have therefore first to concentrate on the word "offence '.

Now an offence seldom consists of a single act.

It is usually composed of several elements and, as a rule, a whole series of acts must be proved before it can be established.

In the present case, the elements alleged against the second accused are, first, that there was an 'entrustment ' and/or 'dominion '; second, that the entrustment and/or dominion was 'in his capacity as a public servant '; third, that there was a 'disposal '; and fourth, that the disposal was 'dishonest '.

Now it is evident that the entrustment and/or dominion here were in an official capacity, and it is equally evident that there could in this case be no disposal, lawful or otherwise, save by an act done or purporting to be done in an official capacity".

On the facts, it was held in that case that the several acts which were complained of, were official acts, and that the prosecution was bad for want of sanction.

The decisions in Hori Ram Singh vs Emperor(1), and Albert West Meads vs The King(1), when properly examined, do not support the extreme contention (1) (2) (3) [1948] L.R 75 I.A. 185.

1309 urged on behalf of the respondent.

In Hori Ram Singh vs Emperor(1), the medicines had not been entered in the stock book, and were removed by the accused to his residence, and the charge against him was that in so removing them he had committed MISappropriation.

It was no part of the duty of the accused to remove medicines to his house, and he could not claim that he did so by virtue of his office.

He could have made such a claim if he had, let us suppose, entered the medicines in the stock books and shown them as expended in the hospital.

But, on the facts, no official act was involved, and that was why Varadachariar, J. observed that, ". so far as the charge under section 409 was con cerned, the acts in respect of which he was intended to be prosecuted could not be regarded as acts done or purported to be done in execution of his duty".

Reference may also be made to the following observations of Sulaiman, J. in the same case: "The question whether a criminal breach of trust can be committed while purporting to act in execution of his duty is not capable of being answered hypothetically in the abstract, without any reference to the actual facts of the case.

An attempt to answer the question in a generalized way has been responsible for loose language used in some of the cases cited before us.

The question whether the act purported to have been done in execution of duty or not must depend on the special circumstances of each case".

In Albert West Meads vs The King(1), an Army Officer had received two sums of money, and was subsequently unable to produce them.

He was charged with criminal misappropriation, and convicted.

He contended that the conviction was illegal for want of sanction, but the Privy Council, following H. H. B. Gill vs The King(1), rejected this contention.

It is essential to note that the accused did not claim to have spent the amount in the course of his official duties, but stated that the moneys had been con sumed by fire.

It is with reference to these facts that the Privy Council observed: (1) (2) [1948] L.R. 75 I.A. 185.

(3) [1948] L.R. 75 I.A. 41.

1310 of which he was charged ', i.e. acts of fraudulently misapplying money entrusted to his care as a public servant, 'as acts done by him by virtue of the office that he held ' ".

The result then is that whether sanction is necessary to prosecute a public servant on a charge of criminal misappropriation, will depend on whether the acts complained of hinge on his duties as a pubic servant.

If they do, then sanction is requisite.

But if they are unconnected with such duties, then no sanction is necessary.

In this view, we have to examine whether the acts with which the appellant is charged directly bear on the duties which he has got to discharge as a public servant.

The appellant received the sum of Rs. 51 alleged to have been misappropriated, as Subdivisions Officer, and he admits receipt of the same.

Then it was his duty to pay that amount to the khalasi Parma, and take his signature or thumb impression in acknowledgment thereof.

The accused does claim to have paid the amount to Parma, and the acquittance roll records the payment, and there is in acknowledgment thereof a thumb impression as against his name.

If what appears on the face of the roll is true and whether it is true or not is not a matter relevant at the stage of sanction then the acts with which the appellant is charged fall within the scope of his duties, and can be justified by him as done by virtue of his office.

Clearly, therefore, sanction was required under section 197(1) of the Code of Criminal Procedure before the appellant could be prosecuted under section 409, and the absence of such sanc tion is fatal to the maintainability of the prosecution.

The conviction should, therefore, be quashed.

In this view, there is no need to consider whether on the evidence, the offence of criminal misappropriation or forgery has been brought home to the appellant or not.

The appeal is accordingly allowed, and the convictions and sentences passed on the appellant arc set aside.

Fine, if paid, will be refunded.

Appeal allowed.

Summary: It is not every offence committed by a public servant that requires sanction for prosecution under section 197 (1) of the Code of Criminal Procedure nor even every act done by him while he is actually engaged in the performance of his official duties; but if the act complained of is directly concerned with his official duties so that, if questioned, it could be claimed to have been done by virtue of the office, then sanction would be necessary; and that would be so, irrespective of whether it was, in fact, a proper discharge of his duties, because that would really be a matter of defence on the merits, which would have to be investigated at the trial, and could not arise at the stage of the grant of sanction, which must precede the institution of the prosecution.

Summary: Whether sanction is necessary to prosecute a public servant on a charge of criminal misappropriation, will depend on whether the acts complained of hinge on his duties as a public servant.

Summary: If they do, then sanction is requisite.

Summary: But if they are unconnected with such duties, then no sanction is necessary.

Summary: Hori Ram Singh vs Emperor ([1939] F.C.R. 159), H. H. B. Gill vs The King ([1948] L.R. 75 I.A. 41), Albert West Meads vs The King ([1948] L.A. 75 I.A. 185), Phanindra Chandra vs The King ([1949] L.R. 76 I.A. 10), B. W. Mothavzs vs State of West Bengal ([1955] 1 S.C.R. 216) and Shreekantiah Ramayya Munipalli vs The State of Bombay ([1955] 1 S.C.R. 1177), referred to.


ivil Appeals Nos. 259 and 260 of 1958.

Appeals by special leave from the judgment and orders dated August 5, 1955, of the former Travancore Cochin High Court in Income tax Reference Appeals Nos. 6 of 1953 and 21 of 1954.

K.N. Rajagopala Sastri, R. H. Dhebar and D. Gupta, for the appellant.

G. B. Pai and Sardar Bahadur, for the respondent in C. A. No. 259 of 1959.

A. V. Viswanatha Sastri and Naunit Lal, for the respondents in C. A. No. 260 of 1958.

February 23.

The Judgment of the Court was delivered by KAPUR, J.

These two appeals by special leave raise a common question of law, and that is, whether business losses incurred in the erstwhile State of Cochin could, under the Income tax Act of Travancore, be set off against the business profits made in the erstwhile State of Travancore.

In Appeal No. 260/ 58 a further question arose whether in the case of 259 that assessee the year ending June 30, 1949, was the previous year for the assessment year 1950 51 with the result that it should be assessed under the Indian Income tax Act of 1922.

But this question was not answered by the High Court which confined itself to answering the first question which was common to both the appeals.

The appellant before us in both the appeals is the Commissioner of Income tax and the respondents are the two assessees, in one case a Bank and the other a private limited company.

The main argument has been confined to the question of applicability of section 32(1) and the first proviso to that section of the Travancore Income tax Act (hereinafter called the Travancore Act).

In C. A. No. 259/58 the assessee is a public limited company incorporated in the State of Cochin with branches in that State as well as in what was British India and in Travancore State.

It filed its incometax return showing an income of Rs. 11,872 for the assessment year 1948 49, its accounting year being the previous calendar year.

The Income tax Officer determined its assessable income to be Rs. 90,947 representing only the profit it made in Travancore State and under section 32(1) proviso (1) of the Travancore Act he refused a deduction of Rs. 79,275 shown as loss from branches situate outside the State of Travancore, in British India and other Indian States.

The assessee 's appeal to the Income tax Commissioner was unsuccessful but the Appellate Tribunal held that the banking business of the assessee being one and indivisible for the purpose of determining the amount assessable to income tax it was entitled to deduct the losses incurred outside Travancore State from the profits accruing and arising in that State.

At the instance of the Commissioner of Income tax the following question was referred to the High Court of Travancore Cochin: Is the aforesaid sum of Rs. 79,275 a loss of the assessee arising outside the Travancore State for purpose of the first proviso to section 32(1) of the Travancore Income tax Act ? " This question was slightly modified by the High Court 260 which after referring to several decided cases answered the question in favour of the assessee.

In C. A. 260/58 the assessee is a private limited company with its registered office in the former Cochin State.

It was carrying on business at its head office in Cochin State and it also carried on business in Travancore State.

The assessment was made under the Travancore Act and relates to the previous year ending June 30, 1949, the assessment year being 1950 51.

The assesse made a profit in Travancore State and incurred a loss in the State of Cochin and sought to deduct this loss from the profit of Travancore State thus showing a net profit of Rs. 2,643.

This was not allowed by the Income tax Officer and on appeal this order was confirmed by the Appellate Assistant Commissioner.

The Appellate Tribunal also did not accept the submissions of the assessee and upheld the order of assessment.

On an application of the assessee the following question was referred to the High Court of Travancore Cochin: " Whether on the facts and in the circumstances of the case the loss of Rs. 27,709 arising in Cochin State could be set off against the profit of Rs. 38,998 arising in Travancore State ? " and was answered in favour of the assessee.

The Commissioner has come up in appeal pursuant to special leave against both these judgments.

It may be stated that the relevant sections of the Travancore Act which govern the two appeals are identically worded with those of the Indian Incometax Act of 1922 (to be called the Indian Act).

The corresponding sections are as follows: Headings Sections in Section in Travancore Act.

Indian Act.

Application of the Act 4 4 Head of income charge able to income tax 9 6 Business 13 10 Exemptions of a gene ral nature 18 14 Set off of loss in com puting aggregate in come 32 24 261 It is only necessary to set out section 32(1) of the Travancore Act and the proviso which correspond to section 24(1) and proviso (i) of the Indian Act and which are necessary for the decision of the appeals before us: S.32(1) " Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Section 9 (Section 6) he shall be entitled to have the amount of loss set off against this income, profits or gains under any other head in that year: Provided that where the loss sustained is a loss of profits or gains which would but for the loss have accrued or arisen within British India or in an Indian State and would under the provisions of clause (e) of sub section (2) of Section 18 (Section 14(2)(c) ), have been exempted from tax, such loss shall not be set off except against profits or gains accruing or arising within British India or in an Indian State and exempt from tax under the said provisions ".

(Sections in brackets are the corresponding sections of the Indian Act).

So the only difference between the two sections is that in the proviso to section 24(1) of the Indian Act instead of the words "an Indian State" the words "British India or in an Indian State " have to be substituted.

The question for decision is as to how this proviso is to be construed.

Ordinarily the effect of an excepting or a qualifying proviso is to carve something out of the preceding enactment or to qualify something enacted therein which but for the proviso would be in it and such a proviso cannot be construed as enlarging the scope of an enactment when it can be fairly and properly construed without attributing to it that effect.

Corporation of the City of Toronto vs Attorney General for Canada (1).

But it has been held that a section framed as a proviso to a preceding section may sometimes contain matter which is in substance a fresh enactment adding and not merely qualifying that which goes before.

Rhondda Urban Council vs Taff Vale Railway (2).

It was argued on behalf of the Revenue that this (1) , 37.

(2) , 258.

262 proviso falls in the second category and takes the present cases out of section 32(1) of the Travancore Act and imposes a liability to tax on the profits or gains arising in that State, disallowing a deduction of the losses in British India and in States other than Travancore State against profits made in Travancore State: Rhondda Urban Council vs Taff Vale Railway (1) and Harrison vs Ward (2).

It may be mentioned that in the majority of cases decided in India the proviso to section 24(1) of the Indian Act has been construed in a manner contrary to the submissions made on behalf of the Revenue.

In order to determine the true meaning of the words of the proviso it is necessary and convenient to refer to the scheme of the Indian Act which is admitted by the parties to be same as that of the Travancore Act.

From 1922 to 1939 in order to be taxable income, profits and gains had to be received or had to accrue in British India.

In 1939 the idea of 'total world income ' was introduced and the definition of 'total income ' was modified by the Indian Income tax (Amendment) Act (VII of 1939) which also made consequential changes in other sections of the Indian Act.

Under section 2(15) of the Act total income ' was defined to mean the total amount of income, profits and gains computed in the manner laid down in that Act.

The 'total world income ' was defined as including all income, profits and gains wherever accruing or arising except income to which the Act did not apply.

Section 3 provided for the charge of income tax in respect of the total income of the previous year.

Under section 4 the total income of any previous year of any person who was resident included all income, profits and gains from whatever source derived but (i) it must accrue or arise to him during the year in British India or (ii) accrue or arise to him without British India during such year.

The third clause is not necessary for this appeal.

Section 4(3) provided what income, profits or gains were not to be included in the total income of the person receiving them.

Both under the Indian Act and under the Travancore Act (1) , 258.

(2) [1922] 1 Ch 517.

263 there were six heads of income chargeable to income tax.

In the Indian Act they were set out in section 6 as follows: section 6 " Save as otherwise provided by this Act the following heads of income, profits and gains shall be chargeable to income tax in the manner hereinafter appearing, namely: (iv) Profits and gains of business, profession or vocation.

Then followed sections 7 to 12B laying down the method of computation of the income arising from each head.

In 1941 during the war an exemption was given for the purpose of taxability to any income, profits or gains which accrued or arose within what was then called Indian States but which were not received or brought into British India.

This was done by section 8 of the Indian Income tax (Amendment) Act, 1941 (XXIII of 1941) by which another clause (c) was added to section 14(2) which was as follows: " The tax shall not be payable by an assessee: (c)in respect of any income, profits or gains accruing or arising to him within (an Indian State) unless such income, profits or gains are received or deemed to be received in or are brought into the Indian State in the previous year by or on behalf of the assessee or are assessable under section 12B or section 42".

Thus income, profits or gains arising under any of the heads under section 6 became exempted in circumstances above mentioned but the effect of this exemption was not to exclude such income of an assessee for all purposes as was the case under section 4(3).

Such sums were to be taken,into account for the purpose of determining the rate under section 16 of the Indian Act.

A further consequential change was made in, section 24(1) by 264 the addition of the first proviso and a similar addition was made in the Travancore Act to section 32(1) which has already been quoted and it is this proviso which is the subject matter of controversy between the parties.

A review of the various sections and enactments shows that during 1922 1939 the tax was leviable on income, profits and gains arising or accruing to an assessee in British India.

In 1939 the total income became taxable subject to exclusions in sub section 3 of section 4 and the chargeability of the 'total income ' was laid down in section 3.

In 1941 income, profits or gains which a resident made in an Indian State and in the case of Travancore State income, profits or gains which a resident made in British India or other Indian States were exempted from payment of income tax unless received or brought into the respective territories, but this income, profits or gains had to be included for the purpose of calculating the rate.

Now we come to section 24(1).

This section was introduced in 1922 before which under the Indian Act of 1918 a loss under one head of income could not be set off against income under another head, the taxability of income arising from each head being separate.

By the addition of this section the loss under one head of profits or gains was allowed to be set off against income, profits and gains under any other bead in any assessment year.

There was also a provision in section 24(2) for carrying over the loss after such set off had been effected.

Section 24(1) became the subject matter of controversy in the courts.

The Privy Council in Arunachalam Chettiar vs Commissioner of Income tax(1) held that this section was meant for a set off of profits arising under different heads and not where profits and losses had to be adjusted if they arose under the same head.

Sir George Rankin said at p. 241 " In their Lordships ' opinion, whether a firm is registered or unregistered, partnership does not obstruct or defeat the right of a partner to an adjustment on account of his share of loss in the firm, whether the set off be against other profits under the same (1) (1936) L.R. 63 I.A. 233 265 head of income within the meaning of section 6 of the Act or under a different head (in which case only need recourse be had to section 24, sub section 1) ".

Thus the Privy Council emphasised that the object of section 24(1) was to allow a set off of profits against losses arising under different heads and Only in such cases could recourse be had to section 24(1).

In cases where profits and losses arose under the same head they had to be adjusted against each other.

This Court in Anglo French Textiles Co. Ltd. vs Commissioner of Incometax, Madras (1) again emphasised that distinction in the following words: " Next, a, set off under section 24(1) can only be claimed when the loss arises under one head and the profits against which it is sought to be set off arises under a different head.

When the two arise under the same head, of course the loss can be deducted but that is done under section 10 and not under section 24(1) (Per Bose, J.) Indeed it is not disputed that when profit and loss arose under the same head in any place which was not an Indian State recourse had to be had to the provisions of sections 7 to 12B and not to any other section.

But it was contended on behalf of the Revenue that the first proviso to section 24(1) of the Indian Act not only affected the generality of the main enactment but also introduced an addendum that where the profits of the business arose in what was British India in the case of the Indian Act or what was Travancore State in the case of the Travancore Act and the losses under the head business were sustained in an Indian State or in the latter case in any other Indian State or British India, these losses could not by virtue of the proviso be deducted from profits made in British India or Travancore State as the case may be.

They could only be adjusted against profits arising in an Indian State or in the case of Travancore State in British India or another Indian State.

Thus the proviso, it was contended, was a modification of the method of computation under section 10(2) of the Indian Act for (1)[1953] S.C.R. 448, 453.

34 266 determining profits and gains of the business of any resident.

We should be averse to lend any countenance to such a mode of construing a proviso unless the language used expressly or by necessary intendment leads to that conclusion.

The proper function of a proviso is that it qualifies the generality of the main enactment, by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment.

Ordinarily it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment.

" It is a fundamental rule of construction that a proviso must be considered with relation to the principal matter to which it stands as proviso ".

Therefore it is to be construed harmoniously with the main enactment (Per Das, C. J.) in Abdul Jabar Butt vs State of Jammu & Kashmir (1).

Bhagwati, J., in Ram Narain Sons Ltd. vs Assistant Commissioner of Sales Tax (2) said: " It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision.

It carves out an exception to the main provision to which it has been enacted as a proviso and to no other ".

Lord Macmillan in Madras & Southern Mahratta Railway Co. vs Bezwada Municipality (3) laid down the sphere of a proviso as follows : " The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case.

Where, as in the present case, the language of the main enactment is clear and unambiguous, a proviso can have no repercussion on the interpretation of the main enactment, so as to exclude from it by implication what clearly falls within its express terms ".

The territory of a proviso therefore is to carve out an (1) ; 59 (2) ; , 493.

(3) (1944) L.R. 71 I.A. 113, 122.

267 exception to the main enactment and exclude something which otherwise would have been within the section.

It has to operate in the same field and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect.

(Vide also Corporation of The City of Toronto vs Attorney General for Canada) (1).

In the proviso in dispute there are no positive words which would support an interpretation in favour of the disintegration of the head " business " and compel the application of the proviso to the same head, specially keeping in view the object of the main section, i.e. section 24(1) which was to set off loss of profits or gains under one head against income, profits or gains under any other head.

It was then submitted that in the proviso the words used were " where the loss sustained is a loss of profits or gains " and therefore it necessarily applied to the head " business " in the two respective territories.

But in the main enactment itself, i. e., section 24(1) of the Indian Act the words used are " a loss of profits or gains ".

The mere fact that the word " income " is not used does not justify the construction.

that the intention of the Legislature was to restrict the set off of profits and losses arising in Indian States only to business or to modify the mode of computation under section 10 of the Indian Act.

That the use of these words does not circumscribe the proviso to business alone is shown by the difference in the language of the proviso to sub_s.

(2) of section 24 of the Indian Act: section 24 (2). . . . . . . . . " provided that (a) where the loss sustained is a loss of profits and gains of a business or vocation to which the first proviso to sub section (1) is applicable, and the profits and gains of that business, profession or vocation are, under the provisions of clause (c) of sub section (2) of section 14, exempt from tax, such loss shall not be set (1)[1946] A.C. 32, 37.

268 off except against profits and gains accruing or arising in (an Indian State) from the same business, profession or vocation and exempt from tax under the said provisions ".

That proviso shows that where the Legislature wanted to restrict the losses and profits or gains to business alone they specifically said so.

It is significant that in sections 2(13) and (5) of the Indian Act of 1918 corresponding to sections 2(15) and 6 of the Indian Act of 1922 the word used was" income " which in the latter Act was expanded into " income, profits and gains ".

The Privy Council said in the Commissioner of Income tax, vs Shaw Wallace and Co. (1) that ,the object of the Indian Act is to tax " income " a term which it does not define.

It is expanded no doubt into " income, profits and gains " but the expansion is more a matter of words than of substance ".

It was also so said in Commissioner of Income tax, Bengal vs Mercantile Bank of India Ltd. (2).

See also London County Council vs Attorney General (3).

Thus the mere use of the words loss of profits or gains to be, set off against profits and gains would not be sufficient to restrict the scope of the proviso to the profits and losses arising under the head business in the two territories, i. e., British India and the Indian States.

On behalf of the Revenue an alternate argument was raised for which support was sought from two decisions of the Allahabad High Court in In Re: Mishrimal Gulabchand (4) and Raghunath Parshad vs Commissioner of Income tax (5).

There it was held that section 10 of the Indian Act had to be read with section 14(2) (e) and if profits could not be added for the purposes of total income ' losses sustained also could not be deducted.

Counsel for the Revenue did not go to this extent that because profits were exempted losses could not be deducted; his argument was that because before 1939 income was not chargeable unless it was received or accrued in British India therefore business in section 10 could only mean business in British India.

But this (1)(1932) L. R. 59 I. A. 206, 212.

(3)[1901] A.C. 26.

(2)(1936) L.R. 63 I.A. 457.

(4)[1950] (5) 269 argument does not take note of the definition of total income total world income ' and chargeability of total income under section 3 or the provisions of section 4 where in the case of a resident 'total income ' includes income, profits and gains accruing within or without I British India.

Therefore to say that business in section 10 means business in British India or business the profits or gains of which are taxable in British India is to ignore the definitions and sections 3, 4 and 6.

Section 10 of the Indian Act does not distinguish between business in British India and business in an Indian State or so divide business.

But then it was said that as the profits or gains of business in an Indian State were exempted from payment of tax in British India business in section 10 must mean business in British India.

That would be straining the language of section 10 and would necessitate addition of words in section 10 which are not there in the section.

In the course of argument a number of cases of the, various High Courts were cited and criticised.

We find it unnecessary to refer to them because we have indicated above what is the correct sphere of a proviso and what proviso (i) to section 24(1) means.

In our view the question referred to the High Court which is common to the two appeals was rightly answered in favour of the assessee.

As to the second question in Civil Appeal No. 260 of 1958 we do not propose to say anything.

It will be open to the assessee in that appeal to take such steps in regard to that question as it may be advised.

In the result the appeals fail and are dismissed with costs.

Appeals dismissed.

Summary: Section 32(1) of the Travancore Income tax Act, which corresponds to section 24(1) of the Indian Income tax Act, 1922, provided : " Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Section 9 [section 6 of the Indian Act he shall be entitled to have the amount of loss set off against this income, profits or gains under any other head in that year : Provided that where the loss sustained is a loss of profits or gains which would but for the loss have accrued or arisen within British India or in an Indian State and would under the provisions of clause (c) of sub section (2) of Section 18 corresponding to section 14 Of the Indian Act] have been exempted from tax, such loss shall not be set off except against profits or gains accruing or arising within British India or in an Indian State and exempt from tax under the said provisions ".

Summary: The assessees were companies having their head offices in the erstwhile State of Cochin with branches in the erstwhile State of Travancore and in other places outside the latter State.

Summary: They made profits in Travancore State but incurred losses in Cochin State and other places, and for the purposes of assessment to income tax they sought to deduct this loss from the profits made in Travancore State.

Summary: The Income tax Officer acting under the provisions of the Travancore Income tax Act, determined the assessable income representing only the profits made in Travancore State and under section 32(1), first proviso of the Travancore Income tax Act which corresponds to the first proviso to section 24(1) of the Indian Income tax Act, 1922 refused to allow a deduction of the losses incurred.

Summary: The assessees claimed that the business 257 which they were carrying on was one and indivisible for the purpose of determining the amount assessable to income tax and that they were entitled to a deduction of the losses incurred outside Travancore State.

Summary: The contention on behalf of the income tax authorities was (i) that under the first proviso to section 32(1) of the Travancore Income tax Act losses incurred in places out I side the State of Travancore cannot be set off against profits made in that State, (2) that though profits and losses in the State arising under the same head could be set off, the proviso, aforesaid, affected not only the generality of the main enactment but also introduced an addendum that where the profits of the business arose in the State and the losses under the head business were sustained outside that State, those losses could not by virtue of the proviso be deducted from profits made in the State,(3) that the proviso applied only to the bead " business in the two respective territories, as the words used therein are where the loss sustained is a loss of profits or gains " andthe word " income " is not mentioned therein, and (4) that the word " business " in section 13 of the Travancore Act corresponding to section 10 of the Indian Act, must mean business in Travancore State under section 13 Of that Act and " business in British India " under the Indian Act, because before 1939 income was not chargeable under the two Acts, unless it was received or accrued in Travancore State or British India, as the case may be, and profits and gains of business in territories outside Travancore or in an Indian State were exempted from payment of income tax in Travancore State or in British India, as the case may be.

Summary: Held:(i) Under section 24(1) of the Indian Income tax Act, 1922 Is.

Summary: 32(1) of the Travancore Income tax Act] a set off can be claimed only when the loss arises under one head and the income, profits and gains against which it is sought to be set off arises under a different head.

Summary: In cases where profits and losses arise under the same head they have to be adjusted against each other under the provisions Of sections 7 to 12B of the Indian Act.

Summary: Arunachalam Chettiar vs Commissioner of Income tax, (1936) L.R. 63 I. A. 233 and Anglo French Textiles Co., Ltd. vs Commissioner of Income tax, Madras, , relied on.

Summary: (2)The territory of a proviso is to carve out an exception to the main enactment and exclude something which otherwise would have been within the section; it has to operate in the same field and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect.

Summary: Abdul jabar Butt vs State of Jammu and Kashmir, ; , Ram Narain Sons Ltd. vs Assistant Commissioner of Sales ' ; , Madras & (1944) L.R. 71 I.A. 113 33 258 and Corporation of the City of Toronto vs Attorney General for Of Canada, , relied on.

Summary: Consequently, section 24(1), first proviso, of the Indian Income tax Act, 1922 Is.

Summary: 32(1), first proviso, of the Travancore Act] bars the right of set off only where a loss in the Indian States under one head is sought to be set off against profits in British India under any other head, and does not apply to profits and losses and computation thereof which fall under section 10 of the Indian Act, corresponding to section 13 of the Travancore Act.

Summary: (3)The mere fact that the word " income " is not used in the proviso does not justify the construction that the intention of the Legislature was to restrict the right to a set off of profits and losses arising in Indian States only to business or to modify the mode of computation under section 10 of the Indian Income tax Act.

Summary: (4)The word " business,, in section 10 of the Indian Income tax Act, 1922, is not confined to business in British India, in view of the definition of " total income " and " total world income " and chargeability of total income under section 3, Or the provisions Of section 4 where in the case of a resident " total income " includes income, profits and gains accruing within or without British India.


Appeal No. 513 of 1963.

Appeal by special leave from the Award dated December 1961 of the Maharashtra Industrial Tribunal in Reference (I.T.) No. 48 of 1961.

section V. Gupte, Additional Solicitor General, C. L. Dudhia, K. T. Sule, Atiqur Rahman and K. L. Hathi, for the appel lants.

425 M. C. Setalvad, N. V. Phadke, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for the respondent No. 1.

March 24, 1964.

The Judgment of the Court was delivered by DAS GUPTA, J.

This appeal arises out of an industrial dispute as regards the age of retirement.

The first respondent, Shaw Wallace & Co., was incorporated in January, 1946 as a Private Limited Company to take over the business of the partnership firm of the Shaw Wallace & Co., which had been ,doing business in India for about 60 years.

In July.

1947 the Private Limited Company was converted into a Public Limited Company.

The Head Office of the Company is at Calcutta.

It has Branches in Bombay, Delhi and Via Madras.

The general practice of the Company both at the Head Office and the Branch Offices appears to have been to retire its employees at the age of 55 though in certain cases the Company in its discretion permitted an employee to continue beyond that age.

In September, 1959 an agreement was entered into between the Company and its employees at Calcutta under which the age of retirement was extended to 58 years subject to the employees passing a medical examination on reaching the age ,of 55.

Shortly after this the Company 's employees at Bombay raised a dispute regarding their retirement age.

They claimed that no workman should be retired from service before he bad completed 60 years of age.

This dispute was ultimately referred to the Industrial Tribunal, Maharashtra.

Before the Tribunal the Company resisted the workmen 's claim but submitted that it was agreeable to introduce for its Bombay employees provisions similar to those which had been introduced by agreement for the Calcutta employees retirement at the age of 58 subject to the employee passing a medical examination on reaching the age of 55.

The Tribunal has directed that the age of retirement should be 58 but the Company may in its discretion and with the express or implied consent of the employee concerned continue an employee after he attains that age.

It is against this decision that the present appeal has been filed by the workmen.

As has already been noticed there is no dispute that the age of compulsory retirement should not remain at 55.

The dispute is whether it should be fixed at 58 or at 60.

It is interesting to refer in this connection to the information that has been collected by the Pay Commission (1957 59) as regards the pensionable ages prescribed under the Pension Insurance Schemes for employees generally or for industrial 426 employees and under social assistance or universal schemes in forty eight countries in 1954.

According to this the pensionable age is 70 in two countries; 67 in another two; 65 in twenty four, 60 in seventeen, 55 in two and 50 in one.

Thus out of 48 countries for which information was available it was found that in 45 countries the pensionable age was fixed at 60 or more.

As the Pay Commission Report pointed out: "This is particularly remarkable, considering that the countries differ widely in demographic constitution, levels of economic development, and climatic and social condition; and it indicates a virtual unanimity of competent opinion that balancing the various factors physiological, economic and social that are relevant, the normal working life should continue up to the age of 60, and may well go on up to 65 years.

It is undoubtedly more useful, however, and indeed essential for our present purpose to examine the trends in this matter in our own country and specially in the region in which the present dispute has arisen.

In the delicate task of adjust ing needs of the employees to the interests of the employers and what is even more important to the general interests of the country at large, industrial adjudication has to pay special attention to the prevailing practice in the industrial region concerned.

If in any particular region employees have been successful in their claim for fixing the age of retirement at 60 this very success is bound to raise in others in the region similar expectations.

Refusal of similar relief to them is likely to create discontent.

It is the endeavour of industrial adjudication to prevent this.

That is why on questions of age of retirement and hours of work and other similar matters industrial tribunals attach much weight to what has been done in other industrial concerns in the neighbourhood in recent timeswhether by agreement or by adjudication.

In support of their demand for fixing the age of retirement at 60 the workmen tried to show that in recent years at least the tendency in comparable concerns in Bombay region has been to fix the retirement age at 60.

The Chart which is marked exhibit U 5 mentions 50 concerns in which the age of retirement is 60.

In several of these this age had been fixed as far back as 1950 while in the rest the age was fixed in later years, that is, between 1952 and 1961.

The workmen claim that these showed clearly a tendency in the Bombay region to fix the age of retirement in comparable concerns at 60.

Special emphasis was naturally placed on some decisions of this Court which contained pronouncements as regards the existence of such a trend.

In Imperial Chemical Industries 427 (India) Private Ltd., vs The Workmen(1) where the Tribunal had raised the age of retirement from 55 to 58 and both parties appealed, this Court pointed out that one of the documents on the record "would conclusively show that in Bombay the age of retirement is almost invariably fixed at 60 and not at 55".

In an earlier decision of this Court in Dunzlop Rubber Co. Ltd., vs Workmen(2) it had been urged that the employer was an All India concern and that changing the terms and conditions of service in regard to the age of retirement in one place might unsettle the uniformity and might have serious repercussions in other branches.

The Court pointed out that though this was a relevant consideration its effect had to be judged in the light of other material and relevant circumstances, and that one of the important material considerations in this connection would be that the age of retirement can be and often is determined on industry cum region basis.

The Court then took into account the fact that the Tribunal had found that in all the awards in recent times in various concerns in Bombay region the trend had been to fix the age of retire ment at 60 years.

It was mainly in view of this finding of the Tribunal that this Court refused to disturb the award fixing the age of retirement at 60 years.

It is important to notice that the correctness of the Tribunal 's finding that in all the awards in recent times in the Bombay region the trend had been to fix the retirement age at 60 years, was not challenged before this Court In the present case an attempt appears to have been made on behalf of the respondent Company to show that it was not correct to say that the trend in Bombay region had been to fix the age of retirement at 60.

Reliance was placed for this purpose on the Chart exhibit Cl.

It appears that the res pondent company wrote to the Bombay Chamber of Commerce to ascertain from its member concerns as regards the age of retirement observed by them and the information received from some of them was incorporated in this Chart.

The work men objected to this being received in evidence on the ground that the original letters had not been brought on the record.

It is not however seriously disputed that the Chart correctly reproduces the information as regards the age of retirement given by the various concerns named there.

We think therefore that the objection was rightly rejected by the Tribunal.

This Chart shows the age of retirement for 75 concerns.

In most of the cases the age of retirement is shown as 55 and in a few at 58.

At first sight therefore it appears to afford impressive (1) ; (2) ; 428 testimony against the workmen 's case that the recent trend in Bombay has been to fix the age of retirement at 60.

But on a closer examination it is clear that this document is of little assistance for finding out the recent trend.

There is no indication at all as to how long ago the age of retirement in these concerns was fixed at 55 or at 58.

The Statement filed by the workmen to explain this Chart shows that in two of these cases ' viz., Ingerzoll Band and Northern Assurance Co., the demand for fixing the age of retirement at 60 years is under negotiation.

Exhibit U 6 also shows that in 25 of these concerns the clerical and subordinate staff were not organised into trade unions.

There is thus good ground for thinking that the. reason why these concerns have kept the age of retirement at 55 or 58 are special to them and do not show any recent trend in the matter.

In spite of these infirmities this document, exhibit Cl, appears to have impressed the Tribunal.

The main diffi culty in accepting the Company 's case on this point, viz., the pronouncements of this Court, however, remained.

So, the Tribunal considered it to be its duty to enquire whether the conclusion recorded by this Court in some of its earlier decisions as to the relevant trend in the Bombay region was accurate.

Having embarked an this enquiry, the Tribunal, appears to have taken considerable pains to perform this duty and it has ultimately persuaded itself to hold that no such trend is established in fact.

We ought to add in this connection, that the approach adopted by the Tribunal in dealing with this aspect of the problem is not very commendable, and that its present conclusion that what was said by itself on an earlier occasion and was confirmed by this Court in appeal, was in fact inaccurate, is on the whole unsound.

If this Court had erred in making those pronouncements we would be the first to admit such mistakes and to correct the error.

After careful consideration of all the materials placed on this record, we have, however, found nothing to justify any doubt about the correctness of what was said on the earlier occasion.

On the contrary, the awards and agreements on the question of age of retirement about which information is furnished by the several documents on this record clearly show a consistent trend in the Bombay region to fix the retirement age of clerical and subordinate staff at 60.

The very few departures from this practice which the Tribunal has mentioned are, in our opinion, wholly insufficient to indicate any slowing down of this trend.

What the Tribunal has failed to notice is that instances which may justify a revision of the judicial opinion expressed on an earlier occasion about a particular trend must be strong and unambiguous and they must speak for the period both before and more particularly after the previous finding had been recorded in the matter.

429 Notice has also to be taken in this connection of the Report of the Norms Committee in which the following opinion was expressed: "After taking into consideration the views of the earlier Committees and Commissions including those of the Second Pay Commission the report of which has been released recently, we feel that the retirement age for workmen in all industries should be fixed at 60.

Accordingly, the norm for retirement age is fixed at 60".

This considered opinion of a Committee on which both employers and employees were represented emphasised the fact that in the Bombay region at least there is a general agree ment that the age of retirement should be fixed at 60.

The Tribunal has referred to these observations, but has brushed them aside in a way for which we find no justification.

On a consideration of all the facts and circumstances disclosed by the oral and documentary evidence on this record, we have come to the conclusion that the age of retirement of the appellant workmen should be fixed at 60.

Accordingly, we allow the appeal with costs, and in modi fication of the award made by the Tribunal direct that the age of retirement for the workmen of the respondent be fixed at 60.

Appeal allowed.

Summary: Shortly after the extension of the age of retirement from 55 to 58 subject to the employee passing a medical examination at 55 in the respondent company 's Head Office at Calcutta, their workmen at Bombay branch raised an industrial dispute claiming the extension of their age of retirement from 55 to 60.

Summary: The dispute was referred to the Industrial Tribunal.

Summary: The company resisted the claim but was agreeable to introduce similar provisions as introduced at Calcutta.

Summary: The difficulty in accepting the company 's case was the conclusion recorded by the Supreme Court in its earlier decisions that the trend in Bombay region was to fix the age at 60.

Summary: So the Tribunal considered it to be its duty to enquire whether the conclusion recorded by the Supreme Court was accurate and ultimately persuaded itself to hold that no such trend was established in fact, and directed that the age of retirement should be 58.

Summary: Held: (i) After careful consideration of all the materials placed on this record, there was nothing to justify any doubt about the correctness of what was said on the earlier occasion by this Court.

Summary: The approach adopted by the Tribunal in dealing with this aspect of the problem is not very commendable and its present conclusion that what was said by itself on an earlier occasion and was confirmed by this Court in appeal, was in fact inaccurate, is on the whole unsound.

Summary: (ii) The information furnished by the several documents on this record clearly show a consistent trend in the Bombay region to fix the retirement age of clerical and subordinate staff at 60.

Summary: Imperial Chemical Industries (India) Private Ltd. vs Their Workmen, ; and Dunlop Rubber Co. Ltd. vs Workmen ; , relied on.