Income Tax – Accrual of Income – Mercantile System – Reduction of Commission – Assessee-firm, acting as managing agents of two shipping companies, originally entitled to 10% commission on freight, agreed during the accounting year to reduce the rate to 2½% – Larger commission shown in books but reduced by agreement before close of year – Held: Mere book entries cannot create taxable income where none has actually resulted – Income tax is levied on real income, not hypothetical or potential earnings – The right to 10% commission having been modified within the relevant year, larger income never accrued [Paras 9–11].

Real Income Doctrine – Book Entries vs. Actual Accrual – Under mercantile accounting, entries are relevant only if they correspond to real rights to receive income – If income does not result at all, no tax can be imposed merely because a hypothetical figure is entered in the books – Substance of transaction must determine taxability [Para 10].

Managing Agency Commission – Commercial Adjustment – Reduction of commission was a bona fide business arrangement to secure long-term managing agency through private companies promoted by the assessee – Not a voluntary gift or remission of income already accrued – What was foregone never became “real income” of the assessee [Para 10].

Principle Applied – CIT v. Chamanlal Mangaldas & Co. – Followed – Income that is hypothetical or contingent is not taxable as “accrued income” – Tax is attracted only to income that has actually arisen or has been received [Paras 9–10].

Decision – Larger commission never accrued or was received – Only reduced commission constituted real income – Appeal dismissed with costs [Paras 11–12].

Income Tax – Accrual of Income – Mercantile System – Reduction of Commission – Assessee-firm, managing agents of two shipping companies, originally entitled to 10% freight commission, agreed during the accounting year to reduce commission to 2½% – Entries showing full commission made in books but reduced commission accepted before close of year – Held: Mere book entry cannot create income where none has actually resulted – Income tax is levied on real income, not hypothetical accruals – Since right to receive 10% commission was modified within the relevant year, larger amount never accrued as income [Paras 9–11].

Accounting Principles – Book Entries and Real Income – Under mercantile system, entries in books are relevant only if they correspond to real income – Income must accrue or be received in fact; if income does not result at all, tax cannot be levied merely because book entries show accrual – Hypothetical income not taxable [Para 10].

Managing Agency – Reduction of Commission – Commercial Agreement – Reduction of commission was bona fide business arrangement to secure future managing agency through companies floated by assessee – Not a voluntary gift or surrender of income already accrued – Income that “might have been earned” under old terms is not taxable where new terms altered the right before accrual [Paras 9–11].

Principle Followed – Real Income Doctrine – The ratio in Commissioner of Income Tax v. Chamanlal Mangaldas & Co. approved – Income which is hypothetical or contingent cannot be taxed as “accrued” income – What must be taxed is income that has actually resulted or has become due and enforceable [Para 10].

Decision: Larger commission never accrued or was received – Only reduced commission constituted real income – Appeal dismissed with costs [Paras 11–12].

Criminal Law – Unlawful Assembly – Section 149 IPC – Conviction under Section 302/149 – Five accused persons were charged and tried – Two acquitted – Held: Once the membership of the alleged unlawful assembly drops below five and no other unnamed or unidentified participants are proved to be present, the very basis of Section 149 collapses – Section 149 held inapplicable in absence of proof that five or more persons constituted the unlawful assembly [Paras 7-9].

Criminal Law – Constructive Liability – Section 34 IPC – Conversion of Charge – Though Section 149 was inapplicable due to acquittal of two co-accused, facts established presence of premeditation, participation, and shared motive among the remaining accused – Held: Section 34 IPC could be applied even though it was not explicitly charged – Common intention to commit murder established through conduct before, during and after the attack – Conviction under Section 302/34 upheld [Paras 10-12].

Criminal Procedure – Substitution of Conviction – High Court did not consider applicability of Section 34 IPC though supported by record – Supreme Court substituted conviction under Section 302/149 with Section 302/34 without remanding – No prejudice caused to accused – Sentence of life imprisonment maintained [Para 12].

Decision: Appeal partly allowed – Conviction under Sections 302/149 IPC altered to conviction under Section 302 read with Section 34 IPC – Sentence of life imprisonment affirmed – Conviction and sentence under Section 147 IPC set aside – Appellants acquitted of the offence under Section 147 IPC.

Criminal Law – Section 149 IPC – Essential Ingredient – Unlawful Assembly – Five accused persons named and charged – Two acquitted – Evidence did not establish participation of any unnamed or unidentified persons – Held: In absence of proof of five or more persons, essential ingredient of unlawful assembly under Section 141 not met – Section 149 IPC held inapplicable – Conviction under Section 302/149 cannot stand [Paras 7–9].

Criminal Law – Constructive Liability – Section 34 IPC – Common Intention – Appellants shared motive with co-accused Dalip Singh – All three were lying in wait with weapons – Coordinated assault on victim – Conduct showed premeditation and action-in-concert – Held: Common intention established – Conviction sustainable under Section 302 read with Section 34 IPC [Paras 13–14].

Criminal Procedure – Substitution of Charge – Trial and appellate courts did not consider Section 34 – Supreme Court found sufficient material on record – Altered conviction from Section 302/149 to Section 302/34 – No prejudice caused – Sentence of life imprisonment affirmed – Conviction under Section 147 set aside [Para 15].

Decision: Appeal partly allowed – Conviction under Section 302/149 IPC altered to Section 302 read with Section 34 IPC – Sentence of life imprisonment maintained – Conviction and sentence under Section 147 IPC set aside – Appellants acquitted of offence under Section 147 IPC.

Service Law – Departmental Proceedings – Finality of Orders – Appellant dismissed by Revenue Secretary – Revenue Minister noted on file suggesting reversion instead of dismissal due to mitigating factors – Held: Mere internal noting or expression of opinion on a file does not constitute a binding order unless duly authenticated and communicated – Notings not expressed in the name of the Governor and not communicated cannot be treated as effective executive orders [Paras 8–13].

Administrative Law – Article 166 of Constitution – Formal Requirements – Executive actions of the State must be expressed in the name of the Governor and duly authenticated – Minister’s notings on a file, uncommunicated to the officer concerned, do not constitute action of the State – Until communication occurs, such notings remain provisional and revocable [Paras 9–13].

Government Business Rules – Jurisdiction of Chief Minister – Although the matter pertained to Revenue portfolio, file was referred by the Revenue Minister to Chief Minister for advice – Held: Under Rules 28(ii) and 28(xix) of Punjab Government Rules of Business, Chief Minister was empowered to pass order – Action deemed to be that of the Council of Ministers collectively and hence valid [Paras 15–18].

Constitutional Law – Judicial Review – Article 226 – Appellant’s contention that appeal decision was outside Chief Minister’s jurisdiction rejected – Communication of rejection by Under Secretary satisfies requirement of formal action in terms of Article 166 – No violation of Article 311(2) found [Paras 17–18].

Decision: Appeal dismissed – Chief Minister’s order validly passed in accordance with Rules of Business – No enforceable right arose from uncommunicated notings of Revenue Minister – No interference warranted under Article 226 – However, considering appellant’s status as displaced person, no order as to costs [Paras 19–20].

Industrial Law – Section 33(2)(b), Industrial Disputes Act – Scope and meaning – Employer dismissed workman for misconduct unconnected with pending industrial dispute – Application for approval sent by post on same day to the Labour Court and Industrial Tribunal – One tribunal approved, another refused on the ground that the application was made after dismissal – Held, “action taken” in proviso to Section 33(2)(b) refers to dismissal already made – Employer may dismiss first and then seek approval – No requirement that approval must precede dismissal [Paras 2–9].

Legislative Intent – Difference between Section 33(1) and Section 33(2) – Section 33(1) deals with matters connected with pending dispute and requires prior permission – Section 33(2) covers matters unconnected with dispute and permits dismissal subject to approval – Distinction must be maintained; interpretation making both provisions identical would defeat legislative purpose [Paras 5–7].

Procedure – Simultaneity of Actions – Three requirements under proviso to Section 33(2)(b)—(i) dismissal or discharge, (ii) payment (or tender) of one month’s wages, and (iii) making of an application for approval—must form part of the same transaction – Absolute simultaneity not required – Must be done at once and without delay – To be determined on facts of each case [Para 10].

Labour Law – Effect of Non-Approval – If tribunal refuses approval, dismissal or discharge becomes void ab initio and workman is deemed to continue in service – No specific reinstatement order necessary [Para 9].

Judicial Interpretation – Bombay High Court view in Premier Automobiles Ltd. v. Ramchandra Bhimayya (ILR 1960 Bom 289) overruled – Gujarat High Court decision in Indian Extractions (P) Ltd. v. Vyas (AIR 1961 Guj 22) not accepted – Calcutta High Court view in Metal Press Works Ltd. v. Deb (AIR 1962 Cal 123) approved [Para 11].

Decision: Appeal allowed – Labour Court’s refusal to approve dismissal set aside – Dismissal held in conformity with Section 33(2)(b) proviso – Action of employer approved – No order as to costs [Paras 12–13].

Civil Procedure – Substantial Question of Law – Article 133(1), Constitution of India – Section 110, CPC – The Bombay High Court refused certificate of fitness holding no substantial question of law arose from the construction of a managing agency agreement – Held: The proper test is whether the question is of general public importance or whether it directly and substantially affects the rights of the parties and is either not finally settled, not free from difficulty, or requires discussion of alternative views – If covered by binding precedent or purely an application of settled principles, it is not substantial – Test laid down and clarified – View of Bombay High Court too narrow, Nagpur view too wide, Madras view approved [Paras 3–10].

Constitution – Article 133(1) – Certificate for Appeal to Supreme Court – Construction of a managing agency agreement involving claim for Rs. 26 lakhs held to raise a substantial question of law – High Court erred in refusing certificate [Paras 2, 11].

Contract – Managing Agency Agreement – Clause fixing compensation or liquidated damages – Clause 14 provided payment of compensation equal to monthly salary of “not less than Rs. 6,000” for the unexpired term – Held: Clause constituted complete stipulation for liquidated damages – Parties excluded right to claim unascertained or further damages under Section 73 – Words “not less than” merely emphasised minimum figure and did not import variable or profit-based element – Right to damages under general law excluded when compensation expressly fixed [Paras 15–18].

Contract Act – Sections 73 and 74 – Where parties specify a sum as liquidated damages, the right to general damages under Section 73 is barred – The stipulated amount alone is recoverable, subject to being reasonable – Clause 14 exhaustive of liability [Para 18].

Decision – Appeal dismissed – High Court judgment affirmed – Liquidated damages confined to Rs. 6,000 per month for unexpired period of managing agency – Substantial question of law test clarified for future application [Paras 19–20].

Hindu Law – Adoption by Jain Widow – Customary Authority – Adoption made by Bhuribai, a Jain widow, without express authority from her husband Padamchand – Validity challenged – Held: Among Jains, except those domiciled in Madras and Punjab, a widow has customary right to adopt a son to her deceased husband without express authority or consent of sapindas – Custom well established through long judicial recognition and forms part of general law applicable to Jains in India – Adoption of Rajkumar valid [Paras 9–12].

Custom – Proof and Judicial Recognition – A custom repeatedly recognised by judicial decisions across different sects and regions becomes part of general law applicable to that community – Need for proof in each case dispensed with when custom has acquired legal authority through consistent recognition [Paras 10–11].

Hindu Succession Act, 1956 – Section 14 – “Property Possessed by a Female Hindu” – Interpretation – Share declared in favour of widow under a preliminary decree for partition constitutes “property possessed” by her within Section 14(1) – Such right not inchoate but an existing right recognised by decree – Hindu female becomes full owner of such property irrespective of whether partition was completed before her death [Paras 17–19].

Succession – Devolution under Sections 15 and 16 – On death of widow Khilonabai after commencement of the Act, her share devolved absolutely upon her sons Munnalal and Ramchand to the exclusion of adopted grandson Rajkumar – Property held as full owner under Section 14(1) – Rule of Mitakshara law treating widow’s share as inchoate abrogated by Section 4 and Section 14 of the Act [Paras 18–20].

Judicial Procedure – Appointment of Commissioner in Partition Suit – Appointment to ascertain property and submit proposals for partition does not amount to delegation of judicial function – Commissioner acts only in advisory capacity – Order valid, especially when made with consent of parties [Para 8].

Decision – Adoption valid – Widow’s share under preliminary decree absolute property under Section 14(1) – Devolution on her sons under Sections 15 and 16 – High Court’s decree modified; trial court’s decree restored – No order as to costs [Paras 20–21].

Constitutional Law – Government Servants – Freedom of Speech and Assembly – Rule 4-A of Bihar Government Servants’ Conduct Rules, 1956 prohibiting any demonstration or strike in connection with conditions of service – Held, government servants do not lose their fundamental rights under Part III merely by entering public service – Article 33 applies only to armed forces and forces charged with maintenance of public order – Other government servants continue to enjoy protection of fundamental rights [Paras 5–14].

Freedom of Speech and Expression – Right to Demonstrate – “Demonstration” held to be a form of expression and communication of ideas covered by Article 19(1)(a) and (b) – Peaceful and orderly demonstrations fall within protected freedoms – Violent or disorderly demonstrations fall outside constitutional protection [Para 15].

Reasonable Restrictions – Public Order – Blanket ban on all forms of demonstration, including peaceful and innocuous ones, not a reasonable restriction in the interest of public order under Articles 19(2) and 19(3) – Rule 4-A imposes a total prohibition, not confined to disorderly or violent demonstrations – Entire rule, insofar as it prohibits all demonstrations, struck down as unconstitutional [Paras 16–21].

Strikes by Government Servants – No Fundamental Right – No right to resort to strike recognized under Article 19(1)(a) or (b) – Prohibition of strike in Rule 4-A valid and not unconstitutional [Para 24].

Constitutional Interpretation – Article 33 – Restriction or abrogation of fundamental rights permissible only for armed forces and forces maintaining public order – Other classes of government servants cannot be excluded from protection of Part III merely due to nature of service [Paras 13–14].

Decision: Appeal allowed in part – Rule 4-A, Bihar Government Servants’ Conduct Rules, 1956 struck down insofar as it prohibits demonstrations as violative of Article 19(1)(a) and (b) – Valid insofar as it prohibits strikes – No order as to costs [Para 25].