Shashikant Laxman Kale v. Union of India and

v. Union of India & Ors. etc. etc., Judgments Today 1982 (2) SC 465; L.K. Jha Memorial Lecture, delivered on the 6^th December 1988, by Shri R.N. Malhotra, Governor, Reserve Bank of India, on "Growth and Current Fiscal Challenges", re-ferred to.

Hindustan Antibiotics v. Workmen, [1967] 1 SCR 652 and S.K. Dutta, 1. T.O. v. Lawrence Singh Ingty, [1968] 68 I.T.R. 272, distinguished and held inapplicable.

R.D. Shetty v. International Airport Authority of India, [1979] 3 SCR 1014, cited.

2. 2 In view of the simultaneous definition of 'public sector company' in the Income-Tax Act, there can be no occasion to construe this expression differently without which a private sector compa-ny cannot be included in it. It is, therefore, not possible to construe the impugned provision while upholding its validity in such a manner as to include a private sector company also within its ambit. [468C-D]

3. The principles of valid classification are that those grouped together in one class must possess a common charac-teristic which distinguishes them from those excluded from the group; and this characteristic or intelligible differen-tia must have a rational nexus with the object sought to be achieved by the enactment. [449D] Re The Special Courts Bill, 1978, [1979] 2 S.C.R. 476, referred to.

4. The latitude for classification in a taxing is much greater; and in order to tax something it is not necessary to tax everything. These basic postulates have to be borne in mind while determining the constitutional validity of a taxing provision challenged on the ground of discrimination. 1451C]

P.H. Ashwathanarayana v. State of Karnataka, [1989] (Supp.) 1 S.C.C. 696; Federation of Hotel and Restaurant Association of India v. Union of India, [1989] 178 I.T.R. 97; Kerala Hotel and Restaurant Association & Ors. v. State of Kerala & Ors., A.I.R. 1990 SC 913 and 1. T.O. v. N. Takin Roy Rymbai, [1976] 103 I.T.R. 82 SC, referred to.

East India Tobacco Co. v. Andhra Pradesh, A.I.R. 1962 SC 1733; Vivian Joseph Ferriera v. Municipal Corporation of Greater Bombay, AIR 1972 S.C. 845 and Jaipur Hosiery Mills v. State of Rajasthan, A.I.R. 1971 SC 1330, cited.

5. The Court should, therefore, look beyond the obsten-sible classification and to the purpose of the law and apply the test of 'palpable arbitrariness' in the context of the felt needs of the times and societal exigencies informed by experience to determine reasonableness of the classifica-tion. [453B]

5. 1 It is necessary to discern the true purpose or object of the impugned enactment because it is only with reference to the true object of the enactment that the existence of a rational nexus of the differentia on which the classification is based, with the object sought to be achieved by the enactment, can be examined to test the validity of the classification. [453E-F]

5. 2 There is a clear distinction between the legislative intention and the purpose or object of the legislation. While the purpose or object of the legislation is to provide a remedy for the malady, the legislative intention relates to the meaning or exposition of the remedy as enacted. While dealing with the validity of a classification, the rational nexus of the differentia on which the classification is based has to exist with the purpose of object of the legis-lation, so determined. [453H; 454A]

Francis Bennion's Statutory Interpretation, 1984 edi-tion, page 237, referred to.

6. For determining the purpose or object of the legisla-tion, it is permissible to look into the circumstances which prevailed at the time when the law was passed and which necessitated the passing of that law. For the limited pur-pose of appreciating the background and the antecedent factual matrix leading to the legislation, it is permissible to look into the statement of Objects and Reasons of the Bill which actuated the step to provide a remedy for the then existing malady. [454B-C]

A. Thangal Kunju Musaliar v. M. Venkitachalam Potti & Anr., [1955] 2 S.C.R. 1196; State of West Bengal v. Union of India, [1964] 1 S.C.R. 371 and Pannalal Binjraj v. Union of India, [1957] S.C.R. 233, referred to.

6. 1 To sustain the presumption of constitutionality, consideration may be had even to matters of common knowl-edge; the history of the times; and very conceivable state of facts existing at the time of legislation which can be assumed. Even though for the purpose of construing the meaning of the enacted provision, it is not permissible to use these aids, yet it is permissible to look into the historical facts and surrounding circumstances for ascer-taining the evil sought to be remedied. The distinction between the purpose or object of the legislation and the legislative intention is significant in this exercise to emphasise the availability of larger material to the Court for reliance when determining the purpose or object of the legislation as distinguished from the meaning of the enacted provision. [454F-H]

7. An explanatory memorandum is usually 'not an accurate guide of the final Act'. [455C] Francis Bennion's Statutory Interpretation, 1984 Edn. page 529,referred to.

7. 1 A catch-phrase possibly used as a populist measure to describe some provisions in the Finance Bill in the explanatory memorandum while introducing the Bill in the Parliament can neither be determinative of, nor can it camouflage the true object of the legislation. It is not unlikely that the phrase 'welfare measures' was used to emphasise more on the effect of the provisions thereunder on the taxpayer for populism. [457G] & ORIGINAL JURISDICTION: Writ Petition No. 136 of 1989. (Under Article 32 of the Constitution of India).

Narayan B. Shatye, Mukul Mudgal, Venkatesh Rao, Sudhir Gopi for the Petitioners.

A.B. Divan, V. Gauri Shankar, S.C. Manchanda, Ashok Sagar, Ms. Amrita Mitra, Ms. A. Subhashini, Ravinder Narain, S. Sukumaran, M.K. Shashidharan, S. Rajappa for the Respond-ents.

The Judgment of the Court was delivered by

VERMA, J. This petition under Article 32 of the Consti-tution challenges the constitutional validity of clause (10-C) inserted in section 10 of the Indian Income-tax Act, 1961 (hereinafter referred to as 'the Act') by the Finance Act, 1987 with effect from 1.4.1987. Section 10 deals with incomes not included in total income for the purpose of taxation under the Act. The effect of clause (10-C) so inserted in section 10 of the Act is that any payment re-ceived by an employee of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may, having regard to the economic viability of such company and other relevant cir-cumstances, approve in this behalf, is not included in the total income of such employee resulting in grant of tax exemption to that extent to him. The petitioners contend that the denial of this benefit to an employee of a private sector company at the time of his voluntary retirement amounts to an invidious distinction between public sector employees and private sector employees in the matter of taxation and is arbitrary and unintelligible amounting to hostile discrimination.

The initial submission on behalf of the petitioners was that the aforesaid clause (10-C) of section 10 of the Act is constitutionally invalid for this reason. However, during the course of arguments the stand of the petitioners was modified to contend that the provision must be so construed as to apply to all employees equally, whether of the public or private sector, in order to uphold its validity. The question, therefore, is whether there is any such hostile discrimination as alleged by the petitioners and if so, is it possible to construe the provi-sion in the manner suggested on behalf of the petitioners to apply it equally to all employees of the public as well as private sectors?

The first petitioner is an employee of second respond-ent–Peico Electronic and Electricals Limited, a private sector company–and the second petitioner is a registered trade union representing the employees of the second re-spondent-company. Counsel for the second respondent-company sought to support the petitioners' case. Counsel for the first respondent supporting the validity of the provision indicated that employees of the public sector constituted a distinct class for the purpose of taxation so that there was no discrimination between employees of the same class if the real object of the provision is borne in mind. We shall refer to the arguments of the two sides in some detail later.

Chapter III of the Indian Income Tax Act, 1961 relates to "incomes which do not form part of the total income". Section 10 in Chapter III deals with "incomes not included in total income". It provides that in computing the total income of a previous year of any person, any income falling within any of the clauses therein shall not be included. The several clauses in section 10 specify different incomes which would ordinarily be included in the total income of the assessee for the purpose of taxation but for such a provision. Clause (10-C) of Section 10 is as under: "(10-C):–any payment received by an employee' of a public sector company at the time of his voluntary retirement in accordance with any scheme which the Central Government may, having regard to the economic viability of such company and other relevant circumstances, approve in this behalf."

We may now summarise the arguments advanced before us. Shri Shetye for the petitioners first contended that the reason given for enacting clause (10-C) as indicated in the memorandum explaining provisions of the Finance Bill, 1987 is that the tax benefit is given as a welfare measure. He argued, if so, all employees whether of private or of public sector are in the same class and are entitled equally to the benefit of a welfare measure for employees. His next conten-tion is that, if that be the only stated basis of the clas-sification, it has no rational nexus with the object of the provision and it violates Article 14 of the Constitution. Learned counsel for the petitioners referred to certain other clauses in section 10 of the Act which apply equally to all employees irrespective of the category of their employer, to suggest that all such measures being for bene-fit of employees, no further classification of the employees is permissible with reference to the category of their employer. It was further urged that consequently the exclu-sion of non-public sector employees is not only discrimina-tory but also arbitrary. On this basis it was contended that instead of striking down the provision as invalid which while denying the benefit to the public sector employees would not also serve any useful purpose for the private sector employees, the court should adopt a positive and constructive approach and the provision so construed as to extend its benefit to all employees irrespective of the category of their employer to uphold its validity.

Shri Dewan for the second respondent, a private sector company, supported learned counsel for the petitioners. He contended that if there be any such discrimination then the question to ask is: whether the Parliament intended to confine the benefit of this welfare measure only to employ-ees of the public sector? He further contended that it is possible to read the provision in such a manner as to extend its benefit to all employees instead of confining it only to the public sector employees.

In reply, Dr. Gauri Shankar for the first respondent contended that the employees of public sector constitute a distinct class for this purpose in view of the fact that the public sector undertakings have a distinct character and role in the national economy. He argued that to make the public sector undertakings economically more viable and thereby contribute more to the national economy, it has become necessary to streamline and trim the higher echelons by inducing the unwanted personnel to leave voluntarily with a "golden hand-shake" instead of resorting to retrenchment which involves several complication including protracted litigation which is not conducive to the wellbeing of the public sector undertakings. He argued that this problem does not exist in the private sector where the higher employees can leave or be asked to leave, without corresponding diffi-culties, experienced in the public sector. This provision is meant essentially for employees at the higher levels in the public sector undertakings whose economic status cannot be equated with their counterpart in the private sector. For this reason equating the two sets of employees for the tax benefit was urged to be unjustified, there being an intelligible differentia between them. Dr. Gauri Shankar also contended that the real object of the enactment was to streamline the public sector by reducing overstaffing at the higher level and the consequent tax exemption to the retiring employee was merely the effect or fall-out of the real object. The provision was meant to induce the unwanted personnel to seek voluntary retirement and thereby promote the real object of streamlining the ailing public sector. To support his argument, he produced material indicating the historical background and factual matrix including material to show the great disparity in the emoluments and perquisites, i.e., compensation package of the private sector and the public sector employees particu-larly at the higher levels.

The main question for decision is the discrimination alleged by the petitioners. The principles of valid classi-fication are long settled by a catena of decisions of this Court but their application to a given case is quite often a vexed question. The problem is more vexed in cases falling within the grey zone. The principles are that those grouped together in one class must possess a common characteristic which distinguishes them from those excluded from the group; and this characteristic or intelligible differentia must have a rational nexus with the object sought to be achieved by the enactment. It is sufficient to cite the decision in [1979] 2 SCR 476–In Re The Special Courts Bill, 1978–and to refer to the propositions quoted at p. 534-537 therein. Some of the propositions are stated thus:

"2. The State, in the exercise of its governmental power, has of necessity to make laws operating differently on different groups or classes of persons within its territory to attain particular ends in giving effect to its policies, and it must possess for that purpose large powers of distin-guishing and classifying persons or things to be subjected to such laws.

3. The Constitutional command to the State to afford equal protection of its laws sets a goal not attainable by the invention and application of a precise formula. Therefore, classification need not be constituted by an exact or scien-tific exclusion or inclusion of persons or things. The Courts should not insist on delusive exactness or apply doctrinaire tests for determining the validity of classifi-cation in any given case. Classification is justified if it is not palpably arbitrary.

4. The principle underlying the guarantee of Article 14 is not that the same rules of law should be applicable to all persons within the Indian territory or that the same reme-dies should be made available to them irrespective of dif-ferences of circumstances. It only means that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Equal laws would have to be applied to all in the same situation, and there should be no discrimination between one person and another if as regards the subject-matter of the legislation their position is substantially the same.

6. The law can make and set apart the classes according to the needs and exigencies of the society and as suggested by experience. It can recognise even degree of evil, but the classification should never be arbitrary, artificial or evasive.

7. The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely, (1) that the classification must be rounded on' an intelligible differentia which distinguishes those that are grouped together from others and (2) that differentia must have a rational relation to the object sought to be achieved by the Act.

8. The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them. In short, while Article 14 forbids class discrimination by conferring privileges or imposing liabilities upon person arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities proposed to be imposed, it does not forbid classification for the purpose of legisla-tion, provided such classification is not arbitrary in the sense above mentioned.

11. Classification necessarily implied the making of a distinction or discrimination between persons classified and those who are not members of that class. It is the essence of a classification that upon the class are cast duties and burdens different from those resting upon the general pub-lic. Indeed, the very idea of classification is that of inequality, so that it goes without saying that the mere fact of inequality ,n no manner determines the matter of constitutionality."

(emphasis supplied)

It is well-settled that the latitude for classification in a taxing statute is much greater; and in order to tax something it is not necessary to tax everything. These basic postulates have to be borne in mind while determining the constitutional validity of a taxing provision challenged on the ground of discrimination.

The scope for permissible classification in a taxing statute was once again considered in a recent decision. of this Court in P.H. Ashwathanarayana v. State of Karnataka, [1989] Suppl. 1 SCC 696. After a review of earlier deci-sions, it was stated therein as under:

"It is for the State to decide what economic and socialpoli-cy it should pursue and what discriminations advance those social and economic policies. In view of the inherent com-plexity of these fiscal adjustments, courts give a larger discretion to the legislature in the matter of its prefer-ences of economic and social policies and effectuate the chosen system in all possible and reasonable ways ….. " (emphasis supplied)

In Federation of Hotel and Restaurant Association of India v. Union of India, [1989] 178 ITR 97, it was said as under:

"… The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience."

"… A reasonable classification is. one which includes all who are similarly situated and none who are not. In order to ascertain whether persons are similarly placed, one must look beyond the classification and to the purposes of the law."

(emphasis supplied)

This Court has held in Kerala Hotel and Restaurant Association & Ors. v. State of Kerala & Ors., A.I.R. 1990 SC 913 as under:

"The scope for classification permitted in taxation is greater and unless the classification made can be termed to be palpably arbitrary, it must be left to the legislative wisdom to choose the yardstick for classification, in the background of the fiscal policy of the State to promote economic equality as well ….. ' ' "Thus, it is clear that the test applicable for striking down a taxing provision on this ground is one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience, and the courts should not interfere with the legislative wisdom of making the classification unless the classifica-tion is found to be invalid by this test."

(emphasis supplied)

It is useful to refer also to the decision of this Court in 1. T.O. v. N. Takin Roy Rymbai, [1976] 103 I.T.R. 82 (S.C.)–wherein a similar question relating to validity of classification in another clause of section 10 of the In-come-Tax Act, 1961 arose for consideration. This Court while upholding the validity of the classification summarised the principles applied, as under:

"…. it must be remembered that the State has, in view of the intrinsic complexity of fiscal adjustments of diverse elements, a considerably wide discretion in the matter of classification for taxation purposes. Given legislative competence, the legislature has ample freedom to select and classify persons, districts, goods, properties, incomes and objects which it would tax, and which it would not tax. So long as the classification made within this wide and flexi-ble range by a taxing statute does not transgress the funda-mental principles underlying the doctrine of equality, it is not vulnerable on the ground of discrimination merely be-cause it taxes or exempts from tax some incomes or objects and not others. Nor is the mere fact that a tax falls more heavily on some in the same category, by itself a ground to render the law invalid. It is only when within the range of its selection, the law operates unequally and cannot be justified on the basis of a valid classification, that there would be a violation of Article 14. (see East India Tobacco Co. v. Andhra Pradesh; Vivian Joseph Ferriera v. Municipal Corporation of Greater Bombay; Jaipur Hosiery Mills v. State of Rajasthan)"

(emphasis supplied)

We must, therefore, look beyond the ostensible. classi-fication and to the purpose of the law and apply the test of 'palpable arbitrariness' in the context of the felt needs of the times and societal exigencies informed by experience to determine reasonableness of the classification. It is clear that the role of public sector in the sphere of promoting the national economy and the context of felt needs of the times and societal exigencies informed by experience gained from its functioning till the enactment are of significance. There is no dispute that the impugned provision includes all employees of the public sector and none not in the public sector. The question is whether those left out are similarly situated for the purpose of the enactment to render the classification palpably arbitrary. It is only if this test of palpable arbitrariness applied in this manner is satis-fied, that the provision can be faulted as discriminatory but not otherwise. Unless such a defect can be found, the further question of construing the provision in such a manner as to include all employees and not merely employees of public sector companies, does not arise.

It is first necessary to discern the true purpose or object of the impugned enactment because it is only with reference to the true object of the enactment that the existence of a rational nexus of the differntia on which the classification is based, with the object sought to be achieved by the enactment, can be examined to test the validity of the classification. In Francis Bennion's Statu-tory Interpretation, 1984 edition, the distinction between the legislative intention and the purpose or object of the legislation has been succinctly summarised at p. 237 as under:

"The distinction between the purpose or object of an enact-ment and the legislative intention governing it is that the former relates to the mischief to which the enactment is directed and its remedy, while the latter relates to the legal meaning of the enactment."

There is thus a clear distinction between the two. While the purpose or object of the legislation is to provide a remedy for the malady, the legislative intention relates to the meaning or exposition of the remedy as enacted. While dealing with the validity of a classification, the rational nexus of the differentia on which the classification is based has to exist with the purpose or object of the legislation, so determined. The question next is of the manner in which the purpose or object of the enactment has to be determined and the materi-al which can be used for this exercise.

For determining the purpose or object of the legisla-tion, it is permissible to look into the circumstances which. prevailed at the time when the law was passed and which necessitated the passing of that law. For the limited purpose of appreciating the background and the antecedent factual matrix leading to the legislation, it is permissible to look into the Statement of Objects and Reasons of the Bill which actuated the step to provide a remedy for the then existing malady. In A. Thangal Kunju Musaliar v.M. Venkitachalam Potti & Anr., [1955] 2 S.C.R. 1196, the State-ment of Objects and Reasons was used for judging the reason-ableness of a classification made in an enactment to see if it infringed or was contrary to the constitution. In that decision for determining the question, even affidavit on behalf of the State of "the circumstances which prevailed at the time when the law there under consideration had been passed and which necessitated the passing of that law" was relied on. It was reiterated in State of West Bengal v. Union of India, [1964] 1 S.C.R. 37 1- that the Statement of Objects and Reasons accompanying a Bill, when introduced in Parliament, can be used for 'the limited purpose of under-standing the background and the antecedent state of affairs leading up to the legislation.' Similarly, in Pannalal Binjraj v. Union of India, [1957] SCR 233–a challenge to the validity of classification was repelled placing reliance on an affidavit filed on behalf of the Central Board of Revenue disclosing the true object of enacting the impugned provision in the Income-Tax Act.

Not only this, to sustain the presumption of constitu-tionality, consideration may be had even to matters of common knowledge; the history of the times; and every con-ceivable state of facts existing at the time of legislation which can be assumed. Even though for the purpose of con-struing the meaning of the enacted provision, it is not permissible to use these aids, yet it is permissible to look into the historical facts and surrounding circumstances for ascertaining the evil sought to be remedied. The distinction between the purpose or object of the legislation and the legislative intention, indicated earlier, is significant in this exercise to emphasise the availability of larger mate-rial to the Court for reliance when determining the purpose or object of the legislation as distinguished from the meaning of the enacted provision.

We propose to utilise these permissible aids for dis-cerning the purpose or object of the legislative provision in order to examine the validity of the classification made therein.

Strong reliance has been placed on behalf of the peti-tioners on the Memorandum explaining the provisions in the Finance Bill, 1987, wherein the explanatory note relating to clause 4(a) of the Bill proposing insertion of clause (10-C) in Section 10 of the Income-tax Act, 1961 appears under the heading 'Welfare Measures'. It may be mentioned that this heading is only in the explanatory memorandum and not in the 'Notes on Clauses' appended to the 'Statement of Objects and Reasons' of the Bill. (See [1987] 165 ITR (Statutes) at pp. 119, 122 & 155). We would presently show that the petition-ers cannot draw support from this heading in the explanatory memorandum. Moreover, an explanatory memorandum is usually 'not an accurate guide of the final Act'. (See Francis Bennion's Statutory Interpretation, 1984 Ed. at p. 529).

It was urged that the impugned provision being described as a welfare measure in the explanatory memorandum, the object of the enactment was the welfare of the employees and, therefore, no further classification of the employees could be made. It was argued that the heading 'welfare measures' is, therefore, decisive of the object of its enactment. In our opinion, this cannot be accepted. The Statement of Objects and Reasons (See (1987) 165 ITR (Stat-utes) at p. 119) is as under:

"The object of the Bill is to give effect to the financial proposals of the Central Government for the financial year 1987-88. The Notes on Clauses explain the various provisions contained in the Bill."

Thereafter, the Notes on clauses in the Finance Bill, 1987 are from pp. 119-151. The Note relating to this clause at p. 122 is as under:

"Clause 4 seeks to amend section 10 of the Income-Tax Act. Sub-Clause (a) of this clause proposes to insert a new clause (10-C) in this section. Under the proposed amendment, any payment received by an employee of a public sector company at the time of his voluntary retirement in accord-ance with any scheme which the Central Govern-ment may, having regard to. the economic viability of the public sector company and other relevant circumstances, approve in this behalf, shall be exempt from tax. This amendment will take effect from 1^st April, 1987, and will, accordingly apply in relation to the assessment year 1987-88 and subsequent years."

No where in the 'Notes on Clauses' the proposal in the Bill is described as a welfare measure. It is then in the memo-randum explaining the provisions in the Finance Bill, 1987 that the provisions are divided under different heads, one of which is 'welfare measures'. The subheading relating to this proposal is mentioned as 'Exemption of compensation received by public sector employees on voluntary retire-ment'. It is mentioned in paragraph 13 of the explanatory memorandum that a number of public sector undertakings have formulated voluntary retirement schemes for their employees; that under section 10(10-B) of the Income-Tax Act any com-pensation received by a workman at the time of his retrench-ment is exempt upto the specified limit; and that this limit of exemption under section 10 (10-B) is, however, not ap-plicable in respect of compensation received under certain schemes approved by the Central Government. By enacting section 10 (10-C), the proposal obviously was to extend the same benefit to the payment made under these approved schemes as was existing for compensation under approved scheme given by section 10 (lOB). The heading of 'welfare measures' applies also to paragraph 14 in the memorandum relating to modification of provisions relating to deduction in respect of donations to certain funds etc. It is, there-fore, clear that in this explanatory memorandum the headings are fairly wide and matters collected under the same heading may be diverse not giving a true indication of the object of the provision.

It is also significant that the proposal to amend sec-tion 10 by inserting a new clause (10-C) therein was con-tained in sub-clause (a) of clause 4 of the Finance Bill, while sub-clause (b) of clause 4 of the Finance Bill pro-posed to insert a new item in sub-clause (iv) of clause (15) of section 10 to provide that interest payable by the public sector companies on certain specified bonds and debentures will not form part of the tax-payer's total income subject to the specified conditions. This was in pursuance of a series of public sector bonds being floated which are in-tended to yield tax-free return to the holders of such bonds. The effect of the amendment so made yielding tax-free return to the holders of public sector bonds is similar to the amendment by insertion of a new clause (10-C), the effect of which is to grant tax exemption to employees of the public sector in respect of the amount received under the voluntary retire-ment scheme approved by the Central Government. Both these proposals relating to the amendment of section 10 were in sub-clauses (a) and (b) of clause 4 of the Finance Bill. Ordinarily in the memorandum explaining the provisions in the Finance Bill both the sub-clauses of clause 4 should have been, therefore, mentioned under the same heading being of essentially the same nature. It is interesting to note that the proposal in clause 4(b) was mentioned in paragraph 17 of the explanatory memorandum under the heading 'Incen-tives for growth and modernisation' with the sub-heading 'Measures for raising resources for the public sector'. Admittedly, the effect of this provision was to grant a tax benefit to the holders of the public sector bonds by amend-ing section 10 in this manner but the real object for giving that benefit to the tax-payer was to provide an incentive for growth and modernisation by adopting a measure for raising the resources for the public sector. If the proposal in sub-clause of clause 4 of the Finance Bill fell in this category, there is no reason why the proposal in sub-clause (a) of the same clause of the Bill, both sub-clauses relat-ing to amendment of section 10, can be treated differently merely because in the explanatory memorandum the two sub-clauses are under different headings. This distribution of the sub-clauses of the same clause in the Finance Bill under different heads in the explanatory memorandum is sufficient to show that no particular significance can be attached to the heading 'welfare measures under which the proposal to insert clause (10-C) in section 10 of the Act was placed in that memorandum. We see no reason why insertion of clause (10-C) in section10 cannot also be described as incentive for growth and modernisation being a measure for improvement of the public sector. Obviously the incentive given thereby is to the employees of the public sector companies to resort more readily to the voluntary retirement scheme which would enable improvement of public sector by streamlining its staff.

A catch-phrase possibly used as a populist measure to describe some provisions in the Finance Bill in the explana-tory memorandum while introducing the Bill in the Parliament can neither be determinative of, nor can it camouflage the true object of the legislation. It is not unlikely that the phrase 'welfare measures' was used to emphasise more on the effect of the provisions thereunder on the tax-payer for populism.

In view of the fact that the challenge is based on the initial assumption of equality between all employees of the public sector and the private sector, it will be useful to refer to the nature and role of the public sector undertakings vis-a-vis those of the private sector along with the histor-ical background and surrounding circumstances leading to enactment of the impugned provision. For this purpose, we would first refer to the counter-affidavit of Shri S.K. Abrol, Officer-onSpecial-Duty, Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, New Delhi, which states the reasons for insertion of clause (10-C) in section 10 of the Income-Tax Act, 1961. The coun-ter-affidavit states with reference to some other clauses of section 10 of the Act that the legislature for purposes of exemption from income-tax has always differentiated between private sector employees and those in the public sector and Government employment. It states further as follows: "As submitted in the paragraph above, sectionl 10 (10-C) was introduced by the Finance Act, 1987 w.e.f. 1.4.1987 and the legislature in its wisdom sought to restrict these benefits to only the employees in the public sector. The reason for introducing this provision is contained in the Circular of the Central Board of Direct Taxes explaining the Finance Act, 1987, relevant extract from which is reproduced hereun-der:

15. 1. At present under section 10 (10B) any com-pensation received by a workmen at the time of his retire-ment is exempted upto the amount calculated in accordance with section 25F of the Industrial Disputes Act or Rs.50,000, whichever is less. The limit is, however, not applicable in respect of compensation received under certain schemes approved by the Central Government.

15. 2 A number of public sector undertakings.have formulated voluntary retirement schemes for their employees. With a view to extend relief to such employees, the Finance Act, 1987, by introducing new clause (10C) in section 10, provides exemption in respect of any payment received by them at the time of their voluntary retirement in accordance with any scheme which the Central Government may approve, having regard to the economic viability of the public sector company and other relevant circumstances. This exemption will be available to any employee whether a workman or an executive.

15. 3. This amendment shall come into force w.e,f. 1.4.1987 and will, accordingly, apply to assessment year 1987-88 and subsequent year.' "It is submitted that for all purposes, the private sector and the public sector have been treated differently and are known to be different classes. The Industrial Policy Resolu-tion, 1956, which reviewed the earlier Industrial Policy, clearly distinguished industries in the public sector and those in the private sector. The Industrial Policy Resolu-tion mentioned that for adoption of socialist pattern of society as the national objective, the requirement was that industries of basic and strategic importance, or in the nature of public utility service, should be in the public sector. The Industrial Policy Resolution placed the indus-tries in three different categories; ….. Thus, this categorisation of industries into public sector, private sector was on the basis of Articles 38 and 39 of the Consti-tution of India, as has been mentioned in the Industrial Policy Resolution, 1956."

"The respondent submits that there were certain basic distinctions between the undertakings in the private sector and in the public sector as has been observed by this Hon'- ble Court in the case of R.D. Shetry v. International Air-port Authority of India, [1979] 3 SCR 1014. A public sector undertaking is either established by a statute or incorpo-rated under law. Public Sector Undertakings are wholly controlled by Government not only in their policy making but also in carrying out the functions entrusted to them by law establishing it or by charter of their in corporation. As such public sector undertakings are bound by any directions that may be issued by Government from time to time in re-spect of policy matters. The entire share capital of the public sector undertakings is held by the Government and it is under the direct control and supervision of Government. The pay scales of the employees in the public sector are fixed by the administrative Ministry inconsultation with the Bureau of Public Enterprises, who exercise complete control over the actions of public sector undertakings. The public sector undertakings are answerable to the Parliament through their administrative Ministries. The entire budget of the public sector undertakings is controlled by the administrative Ministries. The Comptroller and Auditor General audits the accounts of the public sector undertak-ings and any leakages etc. are brought to the notice of Parliament. The recruitment and conduct rules of the public sector employees are subject to overall control of Govern-ment through Bureau of Public Enterprises ….. "

" ….. Section 10 (10C), while extending the benefit to employees of public sector has, as its basis, exempted incomes received from Government through public sector undertakings. The distinction is based on intelligent differentiation and the object of this differentiation is to promote the interests of the employees of public sector undertakings so as to bring this at par with the private sector employees whose emoluments and other conditions of service are not governed by any statute or are not under any control."

"The respondent submits that the legislature is aware of the differentiation between the public sector undertakings and private sector undertakings. and in its wisdom. has chosen to restrict the benefit only to the public sector employees ….. "

"The respondent submits that the extension of the benefit of section 10 (10C) of the Income Tax Act to the employees of the private sector is likely to be misused by way of fre-quent payment to the employees in the garb of voluntary retirement benefits and it will not be possible to provide necessary safeguards in law to check such practices. This would defeat the very purpose of the Scheme of Voluntary Retirement, besides leading to large scale revenue loss." (emphasis supplied)

The counter-affidavit filed on behalf of respondent No. 1 disclosing the reasons which led to the insertion of clause (10C) in section 10 of the Act confining the benefit granted thereby only to employees of the public sector indicates that the purposes of the legislation include reduction in the existing gap between the lower compensation package in public sector and the higher compensation package of the counterpart in private sector in addition to prevent-ing misuse of the benefit in private sector which is not subject to the control of administration by Government like that in the public sector. It is evident from the material produced before us that the compensation package in the public sector, particularly at the higher levels, is much lower than that in the private sector.

Some insight into the existing state of the public sector undertakings and their viability with suggestions for improvement are found in the First Dr. L.K. Jha Memorial Lecture, delivered on the 6^th December, 1988, by Shri R.N. Malhotra, Governor, Reserve Bank of India, on "Growth and Current Fiscal Challenges". While giving an overview of the progress during the last four decades, the speaker referred to the 'performance of the public sector' as under: "The public sector which now accounts for about half the total national investment has made crucial contributions to the development of the economy by expanding the infrastruc-ture, establishing basic industries and producing goods and services of strategic importance. The public sector has, however, not been able to generate surpluses commensurate with its share in plan outlays."

On "planning and resources" and "financing of public sector", he said:

"An analysis of the financing pattern of public sector plan expenditures indicates that over time the shares of balance from current revenues and additional resource mobilisation have been declining while reliance on borrowed funds has been rising ….. "

Therefore, he referred to the deterioration in the finances with reference to the growing expenditure, as under:

" ….. Interestingly, about two thirds of the savings of these enterprises represent provisions for depreciation which are supposed to cover replacement costs, Though sever-al of these enterprises are operating efficiently, The savings of public sector enterprises as a group are not commensurate with the investment made in them. According to the public enterprises survey, the capital employed in the Central Public Sector Enterprises amounted to about Rs.52,000 crores at the end of 1986-87. About 100 of these units made losses amounting to Rs. 1,708 crores and 109 units were making after tax profit of Rs.3,478 crores of which Rs.2,142 crores came from the oil sector. The rate of return was 6.0 per cent before tax and 3.4 per cent after tax. If the oil sector which benefits from the oil price policy is excluded, the rate of return would be negative ….. There is imperative need for substantial improvement in the working and profitability of public sector undertakings."

Referring to the existing state of "public debt", he said: "The Long Term Fiscal Policy (LTFP) had raised concern about increasing reliance on borrowings to finance the budgetary outlays and had suggested containment of domestic borrowings including those from the Reserve Bank ….. In the event, the level of borrowings has been much higher than that envisaged in the Seventh Plan …..This has happened de-spite the fact that some public sector enterprises, previ-ously dependent on the budget, were allowed to raise re-sources directly from the capital market through bond float-ations of the order of Rs.2,000 crores each year from 1986- 87 …..

Growing levels of borrowing by the Government and public sector undertakings raise two major concerns. First, whether the present level of Government borrowing is sus-tainable? Unless there are adequate surpluses in the revenue account which can be utilised for debt servicing, the budge-tary deficit would widen. The increased borrowings for debt servicing would create the vicious circle of progressively higher interest burdens and still higher borrowing. The second issue is whether the increasing level of Government borrowing coupled with that of public sector undertakings would result in crowding out of private sector investments. Since the total investment in the economy is shared about equally between the public and private sectors, it is impor-tant to ensure that the 'requirements of the private sector are also adequately met so that the overall growth targets of the national economy are achieved. ' ' Dealing with the efficiency issues, he said as under: "I shall now refer briefly to the efficiency issues with special reference to the public sector ….. The persist-ence of a high ICOR would, however, indicate considerable scope of improvement in efficiency …..

Cost and time over-runs are major contributors to the high ICOR ………. The public sector has rendered great service in providing infrastructure and establishing basic and strategic industries. Managerial skills in that sector are generally of a high order. The aim should there-fore be to promote productivity and profitability of this sector by introducing the requisite policy changes and improvements. One of the important aims of this sector which needs reiteration is its financial viability. Efficient use of manpower is imperative. This is difficulty to ensure if overmanning persists along with restrictive practices which resist technological change and systems improvement ….. "

(emphasis supplied)

The factual matrix and historical background appearing from the above material prove that the public sector needs toning up. One of its affliction is overmanning or surplus staff, the obvious remedy of which is streamlining, by removing the non-productive and unwanted personnel, if possible, without any complication. Retrenchment is often an unsafe course to adopt.since it may lead to protracted litigation and uncertain outcome. We cannot overlook this well known, though unfortunate fact.

A safe mode to relieve the public sector of its unpro-ductive and surplus manpower is to induce those persons to seek voluntary retirement under a scheme providing some incentive or inducement for seeking voluntary retirement. Clause (10-B) of section 10 of Incometax Act, 1961, does grant tax exemption in respect of any compensation received at the time of retrenchment upto the prescribed limit. That limit, however, does not apply to compensation received under certain schemes approved by the Central Government. It is, therefore, reasonable that same benefit be also extended in respect of any payment received by an employee of the public sector on his voluntary retirement under a scheme similarly approved by the Central Government.

The public sector's role visualised on advent of freedom was as an 'instrument of development and national strength', a 'key to our self-reliance', 'catalyst of social change' and for attaining 'commanding heights of the economy' in keeping with our national aim of Welfare State and a social-ist economy. Unfortunately, inspite of a strong rationale for setting up and promoting public sector in the national economy, it has not so far fully justified the legitimate expectation and a large number of the public sector undertakings are losing concerns. A study into the causes which all the public sector has shown that one of its drawbacks is overstaffing. Streamlining the public sector to get rid of its unproductive and unwanted personnel is, therefore, a felt need. A scheme whereby such unwanted personnel can be induced to leave voluntarily granting some incentive for doing so is, therefore, ultimately beneficial to the health and prosperity of the public sector and conse-quently to the national-economy. These factors alone are sufficient to provide an intelligible differentia between public and private sectors and its rational nexus with the object of improving the performance of public sector, pro-moting national economy.

It is useful to remember that the country having opted for mixed economy, the healthy and vigorous functioning of the public sector undertakings is conducive to the benefit of the private sector as well, in addition to promoting the well-being of the national economy. A point of view emerging currently is that just as public sector undertakings are outside the purview of the Monopolies and Restrictive Trade Practices Act by virtue of the exemption conferred on them, the Income-tax Act should confer similar exemption to it from tax liability by suitable amendment in section 10 of the Act as is given to local authorities, housing boards, etc. This view is supported on the ground that the exemption from tax liability or public sector undertakings would ultimately benefit the consumers of the products of the public sector undertakings. This is not an irrelevant cir-cumstances to indicate that according to the general percep-tion, there is a distinction between the public and private sectors. In some earlier decisions of this Court, the public sector has been treated as a distinct class for the purpose of exemption under Statutes.

In Hindustan Paper Corporation Ltd. v. Government of Kerala & Ors., [1986] 3 SCC 398, a provision granting exemp-tion to Government companies and cooperative societies alone for selling forest produce at less than selling price fixed under the Kerala Forest Produce (Fixation of Selling Price) Act, 1978 was held to be constitutionally valid and not violative of Articles 14 and 19(1)(g) of the Constitution of India. It was held that the Government or public sector undertakings formed a distinct class. In this context, it was held as under:

" ….. As far as Government undertakings and companies are concerned, it has to be held that they form a class by themselves since any profit that they may make would in the end result in the benefit to the members of the generalpub-lic. The profit, if any, enriches the public coffer and not the private coffer. The role of industries in the public sector is very sensitive and critical from the point of view of national economy. Their survival very often depends upon the budgetary. provision and not upon private resources which are available to the industries in the private sector ….. "

(emphasis supplied)

Similarly, in M. Jhangir Bhatusha etc. etc. v. Union of India & Ors. etc. etc., 1982 Judgments Today 2 SC 465, a concession in import duty granted to the State Trading Corporation was upheld on the ground that public policy can support the differentiation.

It is clear that the Government or the public sector undertakings have been treated as a distinct class separate from those in the private sector and the fact that the profit earned in the former is for public benefit instead of private benefit, provides an intelligible differentia from the social point of view which is of prime importance for the national economy. Thus, there exists an intelligible differentia between the two categories which has a rational nexus with the main object of promoting the national econom-ic policy or the public policy. This element also appears in the impugned enactment itself wherein 'economic viability of such company' is specified as the most relevant circumstance of grant of approval of the scheme by the Central Govern-ment. This intrinsic element in the provision itself sup-ports the view that the main object thereof is to promote and improve the health of the public sector companies even though its effect is a benefit to its employees.

As already indicated, clause (10-C) of section 10 of the Act itself mentions economic viability of a public sector company as the most relevant circumstance to attract the provision. The economic status of employees of a public sector company who get the benefit of the provision is also lower as compared to their counterpart in the private sec-tor. If this be the correct perspective as we think it is in the present case, the very foundation of the challenge to the impugned provision on the basis of economic equality of employees in both sectors is non-existent. Once the stage is reached where the differentiation is rightly made between a public sector company and a private sector company and that too essentially on the ground of economic viability of the public sector company and other relevant circumstances, the argument based on equality does not survive. This is inde-pendent of the disparity in the compensation package of employees in the private sector and the public sector. The argument of discrimination is based on initial equality between the two classes alleging bifurcation thereafter between those who stood integrated earlier as one class. This basic assumption being fallacious, the question of any hostile discrimination by granting the benefit only to a few in the same class denying the same to those left out does not arise.

We shall now refer to some other clauses of section 10 of the Act to which reference was made at the hearing in support of the rival contentions. Sub-clause (i) of clause (10) of section 10 confines the benefit thereunder only to the Government servants, defence personnel and employees of a local authority. Sub-clause (i) of clause (10-A) similarly confines the benefit to Government servants, defence person-nel and employees of a local authority or a corporation established by a statute. Clause (10-A) also makes a dis-tinction between the Government employees and other employ-ees. Clause (10-B) also removes the limit in respect of any payment as retrenchment compensation under a scheme approved by the Central Government. Some other clauses in section 10 of the Act further show that the scheme of section 10 con-templates a distinction between employees based on the category of their employer. Accordingly, clause (10-C) therein is not a departure from the existing scheme but in conformity with some clauses earlier enacted therein.

Once the impugned provision contained in the newly inserted clause (10-C) of section 10 of the Income-Tax Act, 1961 is viewed in the above perspective keeping in mind the true object of the provision, there is no foundation for the argument that it is either discriminatory or arbitrary. There is a definite purpose for its enactment. One of the purposes is streamlining the public sector to cure it of one of its ailments of overstaffing which is realised from experience of almost four decades of its functioning. In view of the role attributed to the public sector in the sphere of national economy, improvement in the functioning thereof must be achieved in all possible ways. A measure adopted to cure it of one of its ailments is undoubtedly a forward step towards promoting the national economy. The provision is an incentive to the unwanted personnel to seek voluntary retirement thereby enabling the public sector to achieve the true object indicated. The personnel seeking voluntary retirement no doubt get a tax benefit but then that is an incentive for seeking voluntary retirement and at any rate that is the effect of the provision or its fall-out and not its true object. It is similar to the incentive given to the taX-payers to invest in the public sector bonds by non-inclusion of the interest earned thereon in the tax-payer's total income which promotes the true object of raising the re-sources of the public sector for its growth and modernisa-tion. The real distinction between the true object of an enactment and the effect thereof, even though appearing to be blurred at times, has to be borne in mind, particularly in a situation like this. With this perspective, keeping in view the true object of the impugned enactment, there is no doubt that employees of the private sector who are left out of the ambit of the impugned provision do not fall in the same class as employees of the public sector and the benefit or the fall-out of the provision being available only to the public sector employees cannot render the classification invalid or arbitrary. This classification cannot, therefore, be faulted.

Some of the cases cited by the petitioners in support of the contention of equality of employees in the public and private sectors in the present context also are inapplica-ble. The decision in Hindustan Antibiotics v. Workmen, [1967] 1 SCR 652 related to wage fixation and is distin-guishable. S.K. Dutta, I.T.O. v. Lawrence Singh Ingty, [1968] 68 ITR 272–was distinguished and explained in [1976] 103 ITR 82 relied on by us. Moreover, [1976] 103 ITR 82 which also related to a provision in Section 10 of Income-tax Act, 1961 itself says as under:

"Classification for purposes of taxation or for exempting from tax with reference to the source of the income is integral to the fundamental scheme of the Income-tax Act. Indeed, the entire warp and woof of the 1961 Act has been woven on this pattern."

" ….. Suffice it to say that classification of sources of income is integral to the basic scheme of the 1961 Act. It is nobody's case that the entire scheme of the Act is irrational and violative of article 14 of the Constitution. Such an extravagent contention has not been canvassed before us. Thus, the classification made by the aforesaid sub-clause (a) for purposes of exemption is not unreal or un-known. It conforms to a well-recognised pattern. It is based on intelligible differentia. The object of this differentia-tion between income accruing or received from a source in the specified areas and the income accruing or received from a source outside such areas, is to benefit not only the members of the Scheduled Tribes residing in the specified areas but also to benefit economically such areas ….. "

The other submission of the petitioners is to read the provision in a manner which would cover all employees in-cluding employees of the private sector within the ambit of the impugned provision. This further question does not arise in view of our conclusion that there is no discrimination made out. We may, however, mention that the Finance Bill, 1987 while inserting a new clause (10-C) in section 10 of the Income-tax Act simultaneously inserted a new clause (36-A) in section 2 of the Act with effect from 1.4.1987 defining 'public sector company', which expression has been used in the newly inserted clause (10-C) of section 10. In view of the simultaneous definition of 'public sector compa-ny' in the Act, there can be no occasion to construe this expression differently without which a private sector compa-ny cannot be included in it. It is, therefore, not possible to construe the impugned provision while upholding its validity in such a manner as to include a private sector company also within its ambit.

Consequently, the writ petition is dismissed, but in the facts and circumstances of the case, there shall be no order as to costs.

All the interim orders shall stand vacated.

T.N.A. Petition dismissed.

AHMADI, J.

This appeal by special leave is directed against the judgment of the Division Bench of the High Court of Himachal Pradesh in Regular First Appeal No. 7 of 1970 arising out of Suit NO. 11 of 1987. The appellant–original plaintiff–is the second son of late Raja Padam Singh, the ex-ruler of Bushahr State. He filed a suit on 18^th November, 1964 principally against the Union of India and the Govern-ment of the Union Territory of Himachal Pradesh for a decla-ration of his proprietary rights in about 1720 acres of forest land situate in Khatas Nos. 1 & 2, Khataunis Nos.1 to 25 comprising 106 plots, both measured and unmeasured, bearing Khasra Nos. 1, 2, 6, 23, 30, 34, 44, 108,218,222,309,341,409,479,606,433,241,732/280, 736/394 and 728/402 of Chak Addu, tehsil Rampur, in the present district of Mahasu in Himachal Pradesh. He traced his title to the said lands to a Patta executed by his father on 14^th Maghar 1999, Bikrami, i.e. 28^th November 1942 A.D., and to the Order No. 5158 of even date directing corresponding mutation changes. In the said suit Choudhary Gopal Singh & Co., a forest contractor, was added as proforma defendant No. 3 but no relief was claimed against the said party. The said suit was filed on 18^th November, 1964 in the Court of the Senior Sub-Judge, Mahasu, but on the upward revision of the suit valuation for the purposes of court fees and jurisdiction the plaint was presented the High Court of Delhi, Himachal Bench, Shimla, and was re-numbered as Suit No. 11 of 1967. The said suit was tried on the original side of the High Court by Jagjit Singh, J. who by his judgment and order dated 6^th April, 1970 substantially decreed the suit, in that, he upheld the appellant–plaintiff's claim of owner-ship in respect of Khatas Nos. 1 & 2, Khataunis Nos. 1 to 25 comprising 106 plots bearing khasra Nos. 1, 2, 6, 23, 30, 34, 44, 108, 2 18,222,309, 341,409,606, 4 and 33 situate in Chak Addu without prejudice to the application, if any, of Section 27 of the Himachal Pradesh Abolition of Big Landed Estates and Land Reforms Act, 1953. The contesting defend-ants Nos. 1 and 2 preferred an appeal, being Regular First Appeal No. 7 of 1970, before the Division Bench of the High Court which came to be allowed on 31^st December, 1977. The Division Bench came to the conclusion that the grant made by the erstwhile ruler was in respect of revenue yielding lands only admeasuring about 263.4 bighas and not in respect of the forest lands. It, however, took the view that after the execution of the lease-deed dated 25^th September, 1942, Exh.D-1, in favour of the Government of Punjab, the Raja had no subsisting right in the forest lands in question which he could transfer by way of a grant. In that view of the matter the appeal was allowed and the suit of the plaintiff was dismissed in toto with costs throughout. Feeling aggrieved by the said judgment and decree, the original plaintiff has preferred this appeal by special leave under Article 136 of the Constitution. For the sake of convenience we will refer to the parties by their original position and description in the suit. We now proceed to set out the relevant facts.

The Raja of Rampur–Bushahr had sought the aid of the British Government in the management of his forests with a view to preserving, conserving and protecting the same from large-scale illicit and indiscriminate cutting of trees. Pursuant to this request an agreement dated 20^th June, 1864 was executed between the said Raja and the British Govern-ment whereunder a fixed royalty was agreed to be paid to the former. By a subsequent agreement dated 1^st August, 1871, the Raja granted his rights in waif and windfall timber to the British Government in consideration of certain payments agreed upon under the said agreement. The terms of both these agreements were revised in 1877 whereby the British Government agreed to pay a fixed annual sum to the Raja on a fifty years' lease renewable at the will of the British Government. This arrangement was further revised in 1929 w.e.f. 1^st November, 1928 for a period of twenty five years on agreed terms as to payments, etc. During the subsistence of the said agreement, the parties executed yet another agreement of lease dated 25^th September, 1942, Exh. D-1, for a term of fifty years w.e.f. 1^st April, 1941 superseding all previous agreements. Under clause (II) thereof, the term 'forest' was defined to mean and include (a) demarcated forests; (b) forests reserved for the use of the Raja; and (c) undemarcated forests. Demarcated forests were those which were defined and stated as demarcated forests in the forest settlements of Bushahr State whereas undemarcated forests included (a) all tracts of land bearing tree growth or from which the trees were felled and which paid no land revenue as cultivated land to the Bushahr State; and (b) such other tracts of land, cultivated or uncultivated, as with the previous sanction of the Raja were from time to time included in the existing undemarcated forests or were declared to be undemarcated forests. By clause (III) of the said document, the Raja granted to the Punjab Government 'the entire and sole control of the whole of the forests of Bushahr excepting those reserved for the use of the Raja'. The Raja was to receive an annual payment of Rs. 1 lakh to be paid in two equal half-yearly installments of Rs.50,000 on 30^th April and 3 1^st of October of each year. In addition to the said amount of Rs. 1 lakh he was to receive payment of the whole net surplus on the working of the forests included in the lease. Thus, according to clause (III) of the lease agreement the Raja granted to the Punjab Government the entire and sole control of the forests of Bushahr, excepting those reserved for his use under clause (II) thereof.

Under Section 1 of the Indian Independence Act, 1947, as from 15^th August, 1947, two independent Dominions of India and Pakistan came to be set up. By virtue of section 4 the Province of the Punjab as constituted under the Government of India Act, 1935, ceased to exist and the same was recon-stituted into two new Provinces of West Punjab and East Punjab. In section 7(1) were set out the consequences of the setting up of the two Dominions, Paragraph (b) whereof said that 'the suzerainty of His Majesty over the Indian States lapses, and with it, all treaties and agreements in force at the date of passing of this Act between His Majesty and the rulers of Indian States'. The plaintiff's father Raja Padam Singh having died in April 1947, his eider son Tikka Vir Bhadra Singh born to his first wife Shanta Devi succeeded to the Gaddi under the rule of primogeniture but since he was a minor a council for the administration of Bushahr State was set up to mind the affairs of the State. On 15^th April, 1948 an agreement of merger was signed whereby the Raja of Bu-shahr ceded to the Dominion of India 'full and exclusive authority, jurisdiction and powers for and in relation to the governance of the State'. A centrally administered unit of Himachal Pradesh came into being on that day. The agree-ment of lease dated 25^th September, 1942 was formally termi-nated by mutual agreement between the East Punjab Government and the Himachal Pradesh Administration on 1^st April, 1949.

While the forests of Bushahr were under the control and management of the Government of Punjab, Raja Padam Singh, the plaintiff's father, executed a document on 14^th Maghar 1999. Bikrami (i.e. 28^th November, 1942) whereby he bestowed upon the plaintiff and his mother Rani Sahiba Katochi land admeasuring about 1720 acres. This original document called the Patta was admittedly lost during the minority of the plaintiff, vide statement of counsel for defendants Nos. 1 and 2 dated 29^th May, 1969. However, the factum of the grant cannot be disputed as it has been referred to in the subse-quent two grants executed by the plaintiff's father on 29^th Phagun 1999, Bikrami (i.e. 11^th March, 1943–Exh. P-2) and 24^th Maghar 2003, Bikrami (i.e. 10^th December, 1946–Exh. P-1). These two subsequent grants Exh. P-1 and Exh. P-2 have been proved through the evidence of the scribe' PW 1 Thakur Chet Ram. By the execution of the third grant dated 24^th Maghar 2003, Bikrami, the half share granted to the Rani Sahiba Katochi under the first grant of 14^th Maghar 1999, Bikrami, was transferred to the plaintiff with the Rani Sahiba's consent. Thus, the plaintiff became the sole gran-tee of the entire area of 1720 acres but as he was a minor his interest was looked after initially by his father who expired in April 1947 and thereafter by his mother Rani Sahiba Katochi as his natural guardian. After the execution of the first grant of patta the plaintiff's father made an Order No. 5158 of even date directing his revenue officers to effect consequential changes in the mutation. Exh. P-6 is a copy of the mutation entry which contains the following endorsement:

"According to Shri Sarkar's order No. 5158 dated 14.7.99 (equivalent to 28^th November, 1942), the mutation, granting permanent ownership, without condition, of khata khatauni Nos. 1/1 to 20 and 2/21 to 25, plots 106, measuring 263.4 (219.7 plus 43.17) and part of uncultivated Jagir the reve-nue and swai of which has been remitted is sanctioned in favour of Rani Sahiba Katochi and Rajkumar Rajinder Singh Sahib in equal shares in its present form."

The mutation entry Exh. P-6 does not mention the khasra numbers of the 106 plots. Khata khatauni No. 1/1 to 20 comprise 82 plots showing an area admeasuring 219.7 bighas as cultivated and 200.8 bighas as uncultivated whereas khata khatauni No. 2/21 to 25 comprise 24 plots showing an area admeasuring 5.6 bighas as cultivated and 38.11 bighas as uncultivated. The mutation entry, besides mentioning the area of 263.4 bighas, also speaks of 'part of uncultivated Jagir the revenue and swai of which has been remitted'. Even according to the Division Bench of the High Court it is not in dispute that the measurement of 106 plots is much more than 263.4 bighas. This stands corroborated by the note of Mr. Raina, the then Conservator of Forests, Shimla Circle dated 24^th July, 1960 which discloses that the disputed plots over which the plaintiff has made a claim admeasure about 1819 acres. By the second grant of 29^th Phagun 1999, Bikrami, the plaintiff's father granted certain additional land, namely, Basa Sharotkhala Pargana Bhatoligarh, jointly to the plaintiff and his mother Rani Sahiba Katochi. This grant refers to the first grant of 14^th Maghar 1999, Bikra-mi. The third grant of 24^th Maghar 2003, Bikrami, was exe-cuted by the plaintiff's father with a view to making the plaintiff the sole beneficiary under the first two grants by deleting the name of Rani Sahiba Katochi as a joint grantee with her consent. There is no dispute that under the afore-said three grants taken together the properties mentioned therein were bestowed upon the plaintiff exclusively and the Rani Sahiba Katochi had no share therein, nor did she, at any time, make a claim thereto. After the execution of the third grant an order No. 258 dated 3^rd December, 1946, Exh. P- 14, was made by the plaintiff's father directing that all the lands and 'bases' granted under the Patta of 24^th Maghar 2003, Bikrami, exclusively to the plaintiff should be shown in his sole name in the records by deleting the name of Rani Sahiba Katochi therefrom. On the death of the plaintiffs father in April 1947, the Political Agent, Punjab Hill States, Shimla, wrote a letter Exh. P-50 dated 9^th August, 1947 expressing dissatisfaction with the non-implementation of the Patta and directed speedy implementation thereof. In paragraph 3 of the said letter it was stated as under: "There is only one point for decision and that is the valid-ity of the patta dated 19^th December, 1946 granted by the late Raja Padam Singh. The Committee have not questioned this and I, therefore, take it to be the true will of the late ruler. The provision of the Patta are quite clear and reasonable, so 1 order the division of the private property, both movable and immovable, in accordance with its terms, that is to say the possession of the immovable property of the late Ruler specified in the Patta shall at once be mutuated in favour of Rajkumar Rajinder Singh and given in trust to Rani Sahiba katochi on behalf of her minor son ….. ".

The grant was ultimately given effect to be the mutation entry No.2299 dated 17/18-12-2003, Bikrami, Exh. P-13. Unfortunately, the plaintiff's mother who acted as his guardian after the death of her husband in April 1947 also passed away shortly thereafter on 22^nd July, 1949 necessi-tating the Court of Wards to step-in since the plaintiff was still a minor. While the plaintiff's estate was under the Superintendence of the Court of Wards a list of his Jagirs was prepared. This list Exh. P-18, which is in respect of tehsil Ramput, describes the disputed khasra Nos. 341, 108,222, 34, 479,606 and 4 as unmeasured and forest lands. On the plaintiff attaining majority his estate was released w.e.f. 1^st April, 1956 from the Superintendence of the Court of Wards under the Financial Commissioner's notification dated 24^th March, 1956. Owing to the existence of certain pillars of the forest department within the areas belonging to the plaintiff, the plaintiff made a representation Exh. P-25 for the removal of the said pillars from his lands. As a result of this representation, joint demarcation reports dated 24^th June 1958, Exh. P-5, and 9^th December, 1958, Exh. P-8, were made which disclosed that the dispute related to the boundary in compartment 8-b only but no final decision could be taken as some difference of opinion persisted between the officers of the forest department in this behalf. The plaintiff thereafter made a further representation dated 11^th August, 1959, Exh. D-2, claiming compensation for the trees cut by the forest department during his minority when the estate was under the Superintendence of the Court of Wards. As a sequel to this representation Mr. Raina, the Conservator of Forests, wrote a letter dated 27^th May, 1960 marked secret, Exh. D-3/4, wherin he stated that the first class forest compartments 10A (Part, 10B (Part), 9A, 9B, 9C and 8C were the property of the forest department and the question of demarcation of these forests did not arise. He further pointed out that if the possession of these compartments is transferred to the plaintiff the department will have to undergo a loss of Rs. 18.75 lakhs. Lastly, he warned that if the plaintiff's claim is accepted numerous such claims will be made by the villagers because of similar entries in the revenue records. He thought that this was a test case. He followed this up by his note dated 24^th July, 1960, Exh. D- 3/6, wherein he reiterated that except for 263.4 bighas of revenue yielding land the claim of the plaintiff in respect of the remaining 1719 acres was fantastic. He strongly urged that the plaintiff's claim should be rejected outright and he and his contractor, defendant No. 3, should not be al-lowed to lift the timber of the trees which he was permitted to cut from khasra Nos. 341,606, 222 and 34 under the letter No. Ft/43-124/VI dated 29^th February, 1959. Thereafter the Divisional Forest Officer by his letter No. C-II-37/810 dated 25^th May, 1960 informed the plaintiff and defendant No. 3 that the timber felled in compartment 9C should not be removed and no further felling of trees should take place in compartments 8C, 9A, 9B and 10A (Part) and lOB (Part) in khasra No. 341. By a subsequent letter No. CII-37/1181 dated 2^nd August, 1960 the plaintiff was informed that the trees felled in compartments 9B and 9C were Government property and could be removed on payment of Rs.3,05,811.70. An amount of Rs.3,36,000 was later deposited pending finalisation of the dispute.

Certain statutory developments which took place in the meantime may now be noticed. On 25^th February, 1952 the Government of Himachal Pradesh issued a Notification under Section 29 of the Indian Forest Act, 1927 declaring that the provisions of Chapter IV of the said enactment shall apply to all forest lands and waste lands in Himachal Pradesh which are the property of the Government or over which the Government has proprietor rights or to the whole or any part of the produce of which the Government is entitled. This enactment deals with (i) Reserved Forests, (ii) Village Forests and (iii) Protected Forests. Chapter II comprising Sections 3 to 27 deals with Reserved Forests, Chapter III which consists of a single section 28 refers to Village Forests and Chapter IV compris-ing Sections 29 to 34 conncerns Protected Forests. Section 29(1) empowers the State Government to apply the provisions of Chapter IV to any forest land or waste land which is not included in the Reserved Forests but which is the property of the Government, or over which the Government has proprie-tory rights, or to the whole or any part of the forest produce of which the Government is entitled. According to sub-section (2) such forest land and/or waste land comprised in any such notification shall be called a 'protected for-est'. Section 32 empowers the State Government to make rules to regulate the matters catalogued in clauses (a) to (1) thereof in respect of protected forests, which, inter alia, include the cutting, sawing, conversion and removal of trees and timber and collection, manufacture and removal of forest produce from protected forests; the granting of licences to persons felling or removing trees or timber or other forest produce from such forest for the purposes of trade; the payments, if any, to be made by such licencees in respect of such tree, timber or forest produce, etc. Section 33 pre-scribes the penalty for the contravention of the rules. After the issuance of the Notification Exh. DW-1/1 under Section 29, the State Government framed the rules under Section 32, Exh. DW- 1/2, of even date. Under these rules 'First Class Protected Forests' mean and include those forests which are defined and stated as demarcated forests in the Forests Settlement of Bushahr State viz., Forest Settlement Report of Sutlej Valley and Forest Settlement Report of Rupi, Pabar and Giri Valleys prepared in 1921 and 1911, respectively. 'Second Class Protected Forests' mean the undemarcated forests or areas other than the demarcated forests and include all tracts of land bearing tree growth or from which the trees have been felled which pay no land revenue as cultivated land.

The Himachal Pradesh Private Forests Act, 1954, (Act No. VI of 1955) came into force from 28^th June, 1956. Section 2 thereof in terms states that the Act shall not apply to any land which is a reserved or protected forest under the Indian Forest Act, 1927. Section 4 empowers the State Gov-ernment to prohibit by notification the cutting, felling, gridling, lopping, burning, stripping off the bark or leaves or otherwise damaging any tree or counterfeiting or defacing marks on trees or timber in such private forests as may be specified. Under Section 5, after the section 4 notification is issued, the Forest Officer is required within a period of one year from the date of publication of such notification, to demarcate the limit of such forest in accordance with the revenue records and erect such number of boundary pillars at such points of the line of demarcation as may be necessary at Government expense. Once the notification is issued under Section 4, Section 6 restrains the landlord and all other persons from cutting, collecting, or removing trees, timber or other produce in or from the notified forests in contravention of the provisions made in or under the Act. Section 11, however, authorises a Forest Officer on the application of the landlord or owner to grant a licence for the felling of trees for such purposes and with such conditions as he may deem proper. Sub-section (3) of that section permits the owner to exercise the option of selling the trees either through the Forest Department or direct to any contractor. In the latter event the owner must pay 15% fees on the price of the trees calculated in accordance with the prescribed principles. Section 16 makes a contract entered into by the owner with any person conferring on such person the right to cut, collect or remove trees, timber or fuel from the private forests void unless the owner has first obtained a licence in this behalf under Section 11. By notification dated 10^th June, 1959, Exh. P-21 published in the Himachal Pradesh Government Gazette dated 25^th June, 1959, the plaintiff's forests in Khasra Numbers 1, 2, 3,218, 606, 149, 263 and 166 situate in Village Addu were declared 'private forests' under Section 4 of the said statute. By a similar notification dated 17^th September, 1959, Exh. P-22, published in the Himachal Pradesh Government Gazette dated 26^th September, 1959, Khasra Numbers 34, 309, 108, 479, 307, 207 and 3 17 situate in Village Addu were also notified as private forests of the plaintiff under the same provision. The expression 'Private Forests' as defined by Section 3(13) of the Act means a forest which is not the property of the Government or over which the State has no proprietary fights or to the whole or any part of the forest-produce of which the State is not entitled. Subsequently, by Corrigendum Exh. P-29 dated 28^th July, 1960, the State Government deleted Khasra Numbers 1, 2, 3, 2 18, 6, 44, 606, 149, 263 and '166 of Village Addu from the notification of 10^th June, 1959 and Khasra Numbers 34, 309, 108,479,307,207 and 370 of Village Addu from the notification dated 17^th September, 1959 on the ground that they were erroneously notified as they in fact belonged to the Himachal Pradesh Administration.

After the said enactment came into force w.e.f. 28^th June, 1956 and before the notifications under Section 4 thereof were issued, the plaintiff had by his application dated 21^st May, 1957 applied for permission, presumably under Section 11 of the Act, to fell trees from Khasra Numbers 1, 222 & 606 of Village Addu. The said permission was granted by Exh. P-20 and the plaintiff also paid the fee as demanded by Exh. P-23 dated 23^rd August, 1957. By another application dated 16^th February, 1959 the plaintiff sought permission to sell trees from khasra Numbers 34, 222, 34 1, 606 of Khewat No. 1, Khatauni No. 2 which was granted by the Chief Conservator of Forests by his letter Exh. P-28 dated 19^th February, 1959. By the said letter the plaintiff was informed that the Divisional Forest Officer had been in-structed to mark the trees in the said areas silviculturally and to allow him to sell and remove the same through his contractor (defendant No. 3). However, the attitude of the Government underwent a change after Mr. Raina's secret letter of 27^th May, 1960 and his note dated 24^th July, 1960. The State Government issued a corrigendum dated 28^th July, 1960 amending the earlier notifications issued under Section 4; restrained the plaintiff and his agent defendant No. 3, from cutting and lifting the trees from the forest area and compelled deposit of Rs.3,36,000 for removing the trees and was also required to execute a bond. The plaintiff, there-fore, filed the suit which has given rise to this appeal to assert his rights.

The learned Trial Judge on a close scrutiny of the oral and documentary evidence placed on record came to the con-clusion that (i) the plaintiff's father, who in internal matters had sovereign powers, had bestowed the lands in dispute as a perpetual and unconditional grant on the plain-tiff and the mere fact that in the mutation entry the area was shown to be 263.4 bighas did not imply that the grant was limited to that much land only. He held that (ii) in the State of Bushahr only cultivated land was generally measured and forest lands remained unmeasured and, therefore, the area of only revenue yielding cultivated land was mentioned in the mutation entry but that did not mean that the grant was confined to that area only. He also held that the subse-quent grant of 25.10.2003 Bikrami was executed by the plain-tiff's father with the concurrence of Rani Saheba Katochi, with a view to conferring exclusive proprietary rights in the entire grant on the plaintiff. Further according to the learned Trial Judge, the evidence, considered as a whole, fully established that (iii) the grant was not repudiated but was given effect to by the Political Agent, Shimla, as well as by the revenue authorities of Bushahr State and was recognised by the Dominion of India at the time of the State's merger. He found that in the statement of the Zamin-dars of Village Addu, Exh. P-26, it was specifically admit-ted that the forest comprised Khasra Nos. 34, 141, 222 and 606 Khewat No. 1, Khatauni No. 2 and was 'owned' and was 'in possession' of the plaintiff. (iv) Assuming that the lands in dispute formed part of forests leased to the Government of Punjab, the learned Judge held that the Raja was not precluded from making the grant and the grants made in favour of the plain-tiff were perfectly legal and valid. After the lease was terminated by mutual consent of the Governments of Himachal Pradesh and East Punjab, the Himachal Pradesh Administration treated the plaintiff as the owner and permitted him various acts as owner and person in possession. Notifications were issued under Section 4 of the Himachal Pradesh Private Forest Act, 1954 declaring the disputed lands as private forests. He held that the notification issued under Section 29 of the Indian Forest Act had no application. According to him, except for an area of 11 biswas occupied by roads of the Forest Department, the plaintiff was in possession of the remaining forest lands. The learned Trial Judge, there-fore, held that the suit was neither barred by limitation nor on account of Section 34 of Specific Relief Act, 1963. The other technical objections to the maintainability of the suit were spurned and the learned Trial Judge decreed the suit as stated earlier-

On appeal the Division Bench of the High Court came to the conclusion that when the plaintiff's father executed the first grant in favour of the plaintiff he was aware that he had renewed the lease in respect of the forest lands for a period of fifty years and, therefore, he could not have intended to make an absolute grant in respect of the forest lands covered under the lease to the plaintiff. According to the Division Bench after the execution of the agreement of lease dated 25^th September, 1942, (v) the plaintiff's father had no surviving or subsisting right in the lands covered under the lease and, therefore, the grant in respect of the forest lands was of no consequence and did not confer any right, title or interest in the plaintiff. At the most the grant could take effect in respect of revenue yielding cultivated land admeasuring 263.4 bighas. In support of this finding the Division Bench points out (1) that the grant Exh. P-1 dated 10^th December, 1946 refers to the lands by Basa and not Khasra which reveals that reference is only to revenue yielding area in the occupation of tenants; (2) that clause 2 of Exh. P-2 shows that the intention of the grantor was to secure an annual income of Rs.9,000 for his son which could only be from the revenue yielding lands as the forest lands were already placed at the disposal of the Government of Punjab and (3) that the recital in Exh. P-2 regarding handing over of the Basajat could be in respect of revenue yielding area only as the forests were already in the pos-session of the Punjab Government. The 'Division Bench also held that the notification under Section 29 of the Indian Forests Act was validly issued and so long as it held the field, no notification could be issued under Section 4 of the Himachal Pradesh Private Forest Act, 1954 and the same were, therefore, rightly corrected by deleting the Khasra Numbers claimed by the plaintiff from the notified forest area. It, therefore, held that the said two notifica-tions issued under Section 1 had no efficacy in law and the permissions granted under Section 11 of the said law can be of no avail to the plaintiff. As regards the plaintiff's contention based on the surrender of the lease in 1949, the Division Bench concluded that the exchange of letters Exh. DW-1/3A dated 25^th April, 1949 by Himachal Pradesh Govern-ment and Exh. DW- 1/ 3B dated 5/9^th May, 1949 by the East Punjab Government revealed that an arrangement was worked out whereunder the East Punjab Government transferred the management and administration of the disputed forests to the Himachal Pradsh Government on certain terms and conditions and there was no completed surrender of the lease. Adopting this approach, the Division Bench reversed the findings recorded by the learned Trial Judge and dismissed the plain-tiff's suit in toto with costs throughout. It is against the said Judgment and decree that the plaintiff has moved this Court.

From the above resume of facts and findings recorded by The Courts below, the questions which arise for our determi-nation and on which counsel for the rival sides addressed us may be formulated as under:

1. Whether, by the execution of the Agreements of Lease from time to time beginning with the Agreement of 20^th June, 1864 and ending with the Agreement of 25^th September, 1942, the erstwhile Rulers of Bushahr State, including the plain-tiff's father, had been divested of their rights, title and interests in the forest lands leased thereunder?

2. If no, whether the plaintiff's father was competent to make grants in respect of such forest lands under the Pattas of (i) 14 Maghar 1999 Bikrami (i.e. 28^th November, 1942): (ii) 29^th Phagun 1999 Bikrami (i.e. 11^th March, 1943): and (iii) 24^th Maghar 2003 Bikrami (i.e. 10^th December, 1946)?

3. If yes, was the grant confined to the revenue yielding lands admeasuring about 263.4 bighas only or extended to the other unmeasured forest lands also as claimed by the plain-tiff?

4. Was the State Government competent to issue the Notifica-tion under Section 29 of the Indian Forest Act, 1927? If yes, what is its effect on the plaintiff's claim in the suit? and

5. Was the State Government competent to issue Notifications under Section 4 of the Himachal Pradesh Private Forest Act, 1954? If yes, was the State Government justified in issuing the subsequent Corrigendum of 28^th July, 1960? What is the effect of these statutory developments on the plaintiff's claim?

In order to appreciate the circumstances in which the erstwhile Ruler of Bushahr State entered into an agreement with the British Government in 1864, it would be advanta-geous to notice a few facts mentioned in H.M. Glover's Forest Settlement Report of 11^th February, 1921. In Vol. 1, Chapter II of this Report which concerns Bushahr State, the history of Bushahr forests prior to 1850 is set out. It reveals that at that time large matured trees were plenti-ful. However, there was large scale destruction of these trees due to frequent fires, shifting of cultivation and felling of trees by traders. The Report mentions: "Every forest cleared by traders was subject to frequent fires either caused by carelessness or by villagers who fired the debris and what was left of the standing crops in order to clear the ground for cultivation; there can be no question that if the Government had not assumed control, the forest would have practically disappeared from all the more accessible slopes."

It further reveals that the Raja found it difficult to deal with the traders who indulged in destroying the forests by indiscriminate felling of trees and was anxious to protect them. With this in view he eventually concluded an agreement of lease in 1864 with the British Government whereunder the latter agreed to protect and conserve the forests and pay a fixed royalty for each tree felled. In 1877 the lease was revised, the British Government agreeing to pay a fixed annual lumpsum. The lease was renewed in 1928 on revised terms as to payment for a further period of 25 years but before the expiry of that period another agreement of lease Exh. D-1 was concluded between the Raja and the Government of Punjab on 25^th September, 1942. Clause III of the docu-ment recites as under: ' "III. In consideration of the following payments, the Raja hereby grants to the Punjab Government the entire and sole control of the whole of the forests of Bushahr excepting those reserved for the use of the Raja as defined in Clause II and subject to the definitions and rules prescribed in the Schedule and Appendices attached to this agreement" It becomes clear from the aforesaid clause in the lease deed that the Raja granted 'the entire and sole control' of the whole forest of Bushahr to the Punjab Government excepting the fights specifically reserved unto him. This entire and sole control was granted to enable the Punjab Government 'to make more definite provisions for the conservancy of the forests'. Clause IX of the agreement makes this clear when it says that the whole cost of conserving the forests in-cluded in the lease together will all costs of felling and transporting timber for use of the Punjab Government and of maintaining the necessary establishment in such forests shall be borne by the Punjab Government unless otherwise provided for in the lease. From this clause also it can be seen that the emphasis was on the need to conserve the forests. The Rules framed in the Schedule to the lease reinforce this view. Under paragraph 1 of the Schedule (a) breaking up land for cultivation; (b) setting fire to grass tracts in the vicinity of forest or negligently permitting the fire to extend to forests; (c) setting fire to grass, trees, bushwood or stumps; (d) cutting out slabs, torches, etc., from the steam of standing trees, barking and tapping for resin, or otherwise injuring trees; (e) felling or lopping trees; (f) selling timber; and (g) removing dead leaves and surface soil, is prohibited unless expressly permitted by the Divisional Forest Officer. Even the Raja is not permitted to fell trees and/or remove converted timber from the leased area excepting the specified quantity re-quired for State purposes, vide paragraph 5 of the Schedule. It, therefore, seems clear to us that the paramount object of the lease was to conserve the forests of Bushahr State. But, by concluding the lease agreement with the Punjab Government, the erstwhile Ruler did not convey all his fights, title and interests in the leased forest lands to that Government. All that he did was to transfer the control and management of the forests to the Punjab Government with a view to preserving and conserving the forests. He retained his proprietary interest in the forest lands, subject of course to the limitations concerning the management of the leased area and the fight to the usufruct therefrom. Had it been the intention of the Raja to divest himself of all his interests in the forests lands there was no need to provide the duration of the lease on the expiry whereof (unless the renewal clause was invoked) the Raja would have a right of re-entry. The lease also provided that in addition to the two half-yearly installments of Rs.50,000 each, the Raja was to receive payment of the "Whole net surplus on the working of the forests included in the lease". This is also consistent only with the position that the Raja retained his proprietory interests in the forest lands. We, therefore, find it difficult to agree with the Division Bench that by concluding the agreements of lease from time to time the former Rulers of Bushahr State including the plaintiff's father had divested themselves of all their rights in the leased forests. We are of the opin-ion that the plaintiff's father had a surviving and subsist-ing right in the forest lands which were the subject-matter of the lease dated 25^th September, 1942 and was competent to grant the same to the plaintiff or anyone-else, albeit subject to the terms of the lease.

The first patta was executed by the plaintiff's father on 14^th Maghar 1999 Bikrami whereby he bestowed certain lands jointly on the plaintiff and his mother. The original patta is admittedly not traced. The plaintiff's father had by his order No. 5158 of even date directed corresponding mutation entries to be made in the relevant records. The endorsement found in the copy of the mutation entry Exh. P-6 extracted earlier bears testimony to this fact. This entry shows that the Raja had granted permanent ownership, without condition, of Khata Khatauni Nos. 1/1 to 20 and 2/21 to 25, comprising 106 plots, admeasuring 263.4 bighas and 'part of uncultivated Jagir' the revenue and swai of which was remit-ted. Therefore, the doubt regarding the making of the grant of 14^th Maghar 1999 Bikrami stands repelled. The existence of this grant is further fortified by the mention thereof in the subsequent two grants dated 29^th Phagun 1999 Bikrami and 24^th Maghar 2003 Bikrami. There can, therefore, be no doubt regarding the execution of the patta of 14^th Maghar 1999 Bikrami.

The next question is regarding the identity of land granted to the plaintiff under the said grants. The entry Exh. P-6 mentions the Khata Khatauni numbers and the total number of the plots but does not mention the khasra numbers. Secondly, its area is stated to be 263.4 bighas and 'part of uncultivated Jagir'. The fact that these lands are situated in Chak Addu is not disputed Says Glover's Report: "For administrative purposes the village and its outlying hamlets have been formed into a 'Chak', which forms the unit of the land revenue assessment."

Since the patta in respect of the first grant is admittedly not available, we have to look to evidence aliunde the grant of identify the property settled on the plaintiff. We have already referred to the Raja's order No. 5158 on the basis whereof the entry Exh. P-6 was made. The plaintiffs witness PW7 Thakur Sen Negi has deposed that in Khewat 2, Khatauni 21, Khasra Nos. 6, 34, 101, 222, 341, 479 and 4 are unmeas-ured. Exhs. P-15, P-18, P-33, P-38 and D-4, which are en-tries from the Jamabandi also show that Khasra Nos. 6, 34, 108, 222, 341, 479, 606 and 4 of khatauni No. 21 are unmeas-ured 'Banjar Kadeem'. This expression according to Glover's report means "land, recorded as the property of the Zamin-dar, that has lain waste since the 1889 settlement and pays on land revenue until recultivated. When included in 'Chaks' in demarcated forests it has almost invariably been acquired or exchanged." The Division Bench has, after an elaborate examination of the oral as well as the documentary evidence, particularly Exhs. P-15, P-17, P-18, P-33, P-34, P-36 and P-38, and the notification Exh. P-22 declaring certain areas as private forests, come to the conclusion that land de-scribed as Banjar Kadeem could include forest lands, thereby repelling the submission made by the plaintiff's counsel to the contrary. We cannot, therefore, countenance the submis-sion made by the learned counsel for the contesting defend-ants that the expression Banjar Kadeem does not include forests. If it were so, the whole controversy based on the submission that the Raja was divested of his rights in respect of the forest lands covered by the agreement of lease and was not competent to make a grant thereof would have ended in favour of the plaintiff. We, however, do not consider it necessary to examine the correctness or other-wise of this finding of the Division Bench, since we propose to proceed on the assumption that the disputed lands form part of the leased area.

But the question still survives whether in addition to the cultivated lands measuring about 263.4 Bighas the plain-tiffs father had made a grant in favour of the plaintiff in respect of the disputed forest lands. We may now examine if the subsequent two grants throw any light on this point. The second grant Exh. P-2 was executed on 29^th Phagun 1999 Bikrami. In this document the Jagir granted to the plaintiff under the first Patta has been described as comprising several 'Basas'. By the second grant one more Basa Sharotk-hola pargana Bhatoligarh was granted in perpetuity. The land revenue and other cesses in respect of these basas were remitted for ever.The annual income of the Jagir thus grant-ed was Rs.9,000 and in addition thereto the State agreed to pay Rs.9,000 in cash as Jagir-money, besides agreeing to bear the expense of the plaintiff's education and marriage. The third document Exh. P-1 was executed on 24^th Maghar 2003 Bikrami This document also describes the grant made under the first Patta by different Basas. It further recites that 'the possession of Basa granted to you has already been given and entries have already been made in your favour and you will realise the income from this Jagir ….. '. The argument that as the actual possession of the forests was with the Punjab Government the same could not have been transferred to the plaintiff overlooks the fact in such cases symbolic and dejure possession is transferred to make the grant complete. Therefore, the above recital in the document is consistent with the grant. It is, therefore, clear that certain Basas situate in Basajats were given to the plain-tiff as his Jagir. The dispute in the present case mainly concerns a few Khasra numbers of Basa Kotadhar Ghori Samat Pargana Baghi Mastgarh comprising 106 plots.

What then is a Basa? In paragraph 41 of the Assessment Report of Rohru Tehsil of Bushahr State, Exh. D-7, prepared by Mr. Emerson, Manager of Bushahr State, it is stated as under:

"The State lands in which the Raja enjoys both superior and inferior rights of ownership are of several descriptions: Firstly, there are the Crown estates or Basas, comprising of some of the most fertile area which former Rulers reserved for their own enjoyment or for the support of their rela-tives and dependents. These were formerly cultivated by bethus, under the supervision of a number of officials who were supposed either to remit the produce to the Headquar-ters or to arrange for its loan on extravagant rates of interests to zamindars At present they are leased to con-tractors for fixed periods on cash or grain rents, the former predominating."

According to PW 11 S.R. Jhingta, the power of attorney of the plaintiff, basa land included cultivated forests and grazing lands. PW3 Roop Singh Negi described basa lands as Banjar lands, arable lands, cultivated lands and forest lands. PW 10 Sagar Singh produced pattas to show that two basas containing forests were granted by the Raja to his father. The Division Bench refused to place reliance on the oral testimony of the aforesaid witnesses in view of the aforequoted authoritative definition. But this definition is not exhaustive and does not specifically rule out the inclu-sion of forest lands. If by the grant the Raja intended to grant only the revenue yielding area of 263.4 bighas there was no need to mention 'and part of the uncultivated Jagir' in Exh. P-6. It is an admitted fact that the total area of the basa comprising 106 plots is much more than 263.4 bighas. That means that it includes besides the cultivated area of 263.4 bighas certain unmeasured area also. The revenue of the cultivated area of 263.4 bighas is a paltry Rs.58–8–3. It is not shown that the total revenue of cultivated lands in all the basas constituting the grant works out to Rs.9,000 per year. Besides, if the grant is confined to 263:4 bighas only, the words 'and part of the cultivated Jagir' are rendered redundant. Next-the concerned Khasra numbers have been described as Banzar Kadeem which includes forests as held by the Division Bench. All the entries namely Exh. P- 15, P-33, P-36 and P-38 describe the con-cerned Khasra numbers as unmeasured. If the 106 plots in Exh. P-6 admeasure more than 263.4 bighas, it follows that they also include unmeasured lands referred to as 'part of the uncultivated Jagir'. Reference to uncultivated Jagir implies existence of land other than cultivated revenue yielding land which may include forests. According to Punjab Settlement Manual (Fourth Edition) uncultivated land is classified as Banzar Jagir, Banzar Kadeem and Gair Mumkeen. The Division Bench points out that the definition in the Manual is not to be rigidly construed and would include forest lands which may not be cultivated but may have the potential for cultivation, if forests are removed. In other words lands covered by forests may be highly fertile and may be reserved by the Ruler for his own use or for the use of his relatives and dependents. This supports the statement of PW11 S.R. Jhingta that in Tehsil Rampur forests and grass lands were entered as Banzar Kadeem. This discussion leads us to the conclusion that a Chak comprises Basas, a Basa comprises both cultivated and uncultivated lands, unculti-vated land includes Banzar Kadeem which in turn includes unmeasured forests. The recent revenue Settlement of 1979-80 shows that the disputed Khasra Numbers 34, 222, 34 1 and 606 comprise of 422 plots admeasuring 789-84-85 Hectares out of which 711-2750 Hectares form part of the forests. It is pertinent to note that the same is shown in the ownership of the plaintiff.

The relevant revenue records of the Bushahr State right from 1915-16 show the disputed Khasra Numbers as unmeasured. The list of the plaintiffs Jagir prepared by the revenue authorities after the death of his mother also describes the said Khasra numbers as unmeasured forests. It is also neces-sary to remember that the plaintiff was denied the ownership of Khasra Numbers 241, 732/280, 736/394 and 728/402 admeas-uring about 11 biswas as they formed part of the forest road. These four plots though measured did not yield reve-nue. If the Raja desired to grant only revenue yielding lands to the plaintiff he would not have included these four numbers in the grant. There is, therefore, intrinsic evidence to show that the grant was not limited to only the revenue yielding area of 263.4 bighas. The subsequent conduct of the parties, as we shall presently show, also lends support to this view.

On the plaintiff attaining majority his estate was released from the Superintendence of the Court of Wards w.e.f. 1^st April, 1956. The list in respect of his movable and immovable properties was prepared before the properties were handed-over to the plaintiff. This list dated 31^st January, 1956 shows the total landed estate comprised of 1864 acres. In 1958-59 the plaintiff had planted 3000 Deod-har and Kail trees which was highly appreciated by the Deputy Commissioner, Vide Exh. P-11. Some land was acquired by the State Government for its P.W.D. and the plaintiff was paid Rs. 11,000 as compensation. The plaintiff had also made applications for permission to fell trees from the disputed khasras which were granted, vide Exhs. P-20, P-23 and P-28. Indisputably trees had been felled pursuant to the permis-sion so granted. Next Exhs. P-41 and P-42 show that the plaintiff sold some part of khasra No. 341 on 16^th April, 1960 and 25^th June, 1960 to third parties and corresponding changes in mutation were made. He had also donated some land from the same khasra for a school. These are acts of owner-ship which have not been repudiated. The disputed Khasra numbers were also the subject matter of two notifications issued under section 4 of the Himachal Pradesh Private Forest Act, 1954, whereby they were notified as 'private forests'. All this conduct on the part of the defendants 1 and 2 goes to show that they treated the disputed Khasra Numbers as the Jagir of the plaintiff. It was only in 1960 after Mr. Raina's secret letter and his subsequent note that the defendants disputed the plaintiff's ownership in the said Khasra numbers and issued the corrigendum Exh. P-29 withdrawing the aforesaid two notifications as it was rea-lised that it would result in a substantial loss of Rs. 18.75 lakhs. Till the doubt was raised by Mr. Raina, the State Government throughout treated the disputed Khasra numbers as forming part of the plaintiff's Jagir. this conduct evidence lends support to the view that the disputed Khasra numbers were bestowed on the plaintiff under the first Jagir of 14^th Maghar 1999 Bikrami.

Counsel for the defendants, however, contended that it was not open to the Court in view of the prohibition con-tained in Section 92 (now BSA 95) of the Evidence Act to take into ac-count the subsequent facts and circumstances to determine the extent of the grant under the Patta of 14^th Maghar 1999 Bikrami. He submitted that where a claim is based on a written document, the terms of the document must be inter-preted without the aid of extrinsic evidence. It is true that ordinarily the intention of the parties to a document must be gathered from the language in which the relevant terms and conditions are couched and no oral evidence can be permitted with a view to varying or contradicting the terms of the document. To put it differently, if the terms of the document are clear and unambiguous, extrinsic evidence to ascertain the true intention of the parties is inadmissible because Section 92 mandates that in such a case the inten-tion must be gathered from the language employed in the document. But if the language employed is ambiguous and admits of a variety of meanings, it is settled law that the 6^th proviso to the section can be invoked ;which permits tendering of extrinsic evidence as to acts, conduct and surrounding circumstances to enable the Court to ascertain the real intention of the parties. In such a case such oral evidence may guide the Court in unraveling the true reten-tion of the parties. The object of admissibility of such evidence in such circumstances under the 6^th proviso is to assist the Court to get to the real intention of the parties and thereby overcome the difficulty caused by the ambiguity. In such a case the subsequent conduct of the parties fur-nishes evidence to clear the blurred area and to ascertain the true intention of the author of the document. If any authority is needed in support of this proposition reference may be made to the case to Abdulla Ahmed v. Animendra Kissen Mitter, [1950] SCR 30. At page 46 we find the following passage:

"The evidence of conduct of the parties in this situation as to how they understood the words to mean can be considered in determining the true effect of the contract made between the parties. Extrinsic evidence to determine the effect of an instrument is permissible where there remains a doubt as to its true meaning. Evidence of the acts done under it is a guide to the intention of the parties in such a case and particularly when acts are done shortly after the date of instrument (Vide para 343 of Hailsham Edn. of Halsbury, Vol. 10, p. 274)".

In the present case the Patta of 14 Maghar 1999 Bikrami is admittedly lost. Reliance was, therefore, placed on Exh. P-6 which incorporates the order No. 5158 of even date. The entry in Exh. P-6 mentions the Khata Khatauni of the 106 plots granted to the plaintiff and the area thereof is shown to be 263.4 bighas and part of the uncultivated jagir Since a doubt arose whether the disputed Khasra numbers formed part of the uncultivated Jagir referred to in Exh-.P-6, the parties led oral as well as documentary evidence with a view to enabling the Court to ascertain the extent of the Jajir granted to the plaintiff. Since the words 'part of the uncultivated Jagir' were ambi-gous extrinsic evidence aliunde the grant became necessary to explain the coverage of those words. We, therefore, do not see any merit in the objection.

We may now consider the effect of the notification issued under section 29 of the Indian Forest Act, 1927. Sub-section (1) of section 29 permits the State Government to issue a notification declaring the application of the provisions of Chapter IV to any forest land which is not included in a reserved forest but which is the property of Government, or over which the Government has proprietary rights, or to the whole or any part of the forest produce of which the Government is 'entitled'. The forest land com-prised in any such notification is called a 'protected forest'. Sub-section (3) of section 29 reads as under: "No such notification shall be made unless the nature and extent of the fights of Government and of private persons in or over the forest-land or waste-land comprised therein have been inquired into and recorded at a survey or settlement, or in such manner as the State Government thinks sufficient. Every such record shall be presumed to be correct until the contrary is proved."

The proviso to that sub-section, however, permits the State Government to issue a notification before completion of such inquiry and record in the event of urgency. The Division Bench was, therefore, not fight in presuming that an inquiry of the type contemplated by subsection (3) of Section 29 must have preceded the notification. The possibility of the application of the urgency clause cannot be ruled out. The inquiry is contemplated to determine the nature and extent of the rights of the Government and of private persons in or over the forest land. Based on the findings of the inquiry the record is to be prepared. The learned Trial Judge has observed that 'after the grant no right of the Government in the land in suit was recorded in the Forest Settlement or land revenue settlement or the land revenue records'. Under sub-section (3) such a record shall be presumed to be cor-rect until the contrary is proved. The presumption, there-fore, attaches to the record prepared in pursuance of the inquiry. In the present case, no such record evidencing the fight of the Government in the forest land or forest produce is shown to have been made. Therefore, the question, of presumption of correctness of record never arose and the plaintiff was not obliged to dislodge the same. The evidence on the contrary shows that the disputed lands were entered in the revenue records as the private property of the plaintiff. That should be so because where the land in question forms part of a permanently settled grant, it is ordinarily the private property of the grantee. That is why by the subsequent notifications issued under section 4 of the Himachal Pradesh Private Forest Act, 1954, the disputed forests were notified as private forests of the plaintiff. The plaintiff, therefore, sought permis-sion, presumably under section 11 of the said Act, for cutting and felling trees situate in his private forests. If the notification issued under section 29 held the field, the State Government could not have issued the subsequent noti-fications under section 4 of the State Act, in view of section 2(b) thereof which in terms states that 'this Act shall not apply to any land which is a reserved or protected forest under the Indian Forest Act, 1927'. But before the State Government can invoke section 29(1), it must be shown that the requirements of that provision are satisfied. From the various documents placed on record it is quite clear that the disputed forests did not belong to the Government nor did the Government have any proprietary rights thereon. But the Division Bench has held that the Government was entitled to the whole or part of the forest produce under the agreement of lease dated 25^th September, 1942. The agreement of lease merely permitted the Government to manage the forests as the Raja found it difficult to prevent the indiscriminate cutting and felling of trees. To preserve and conserve his forests, the Raja sought the aid of the British Government from time to time. Under the last agreement of lease, the Raja granted the sole control of the forests to the Punjab Government without transferring or conveying his proprietary interests therein. The Punjab Government was liable to account for the usufruct as the Raja was entitled to the whole net surplus determined triennially after de-ducting from the total revenue from the forests the total expenditure incurred by the Punjab Government over the same period. Therefore, the Government was not 'entitled' to the whole or any part of the produce in its own right dehors the lease. The word 'entitled' in the context must take colour from the preceding words and must be understood to mean that the Government must have an independent claim or right to the forest produce and not merely a right to collect and deal with the same subject to an obligation to account for the same to the owner. The word 'entitled' is used in the sense of the Government having a right or claim to the usufruct in its own right and not as the agent of another.

After we attained independence, the erstwhile ruler of Bushahr State ceded to the Dominion of India whereupon the properties belonging to the State as distinguished from private property devolved on the Himachal Pradesh Administration. As discussed earlier, the record shows the disputed khasra numbers as the private property of the plaintiff. The plaintiff exercised proprie-tary rights thereon till 1960 when doubts were raised by Raina, who feared that if the plaintiffs claim is conceded the State will have to suffer a loss of Rs. 18.75 lakhs approximately. Since the Raja exercised supreme fights in internal matters he was entitled to make a grant in respect of property over which he exercised ownership fights as a ruler. Therefore, once the disputed property was granted to the plaintiff, the latter became the owner thereof. The suzerainty of the British Crown over the Indian States lapsed as from the appointed day, i.e. 15^th August, 1947, by virtue of section 7(1)(b) of the Indian Independence Act, 1947, and with it lapsed (i) all agreements in force between His Majesty and the rulers of Indian States and (ii) all obligations of His Majesty towards the Indian States. After the merger of the Bushahr State, a separate administrative unit was constituted by the Central Government for Himachal Pradesh. It appears from the letter Exh. DW-1/3A dated 25^th April, 1949 that the lease agreement was mutually terminated and the management of the forests was taken over by Himachal Pradesh Administration from the East Punjab Government w.e.f. 1^st April, 1949 on the stated terms. The said terms were accepted by the East Punjab government by the Chief Secretary's letter dated 5/9^th May, 1949, Exh. D- 1/3B. At the date of merger the forests belonging to the State of Bushahr devolved on the Himachal Pradesh Administration except the private forests. The need to continue the lease for a few private forests was perhaps not felt. On the termination of the lease the private property reverted to the owners. However, so far as the plaintiffs forests were concerned they continued under the State's management since he was a minor. But on that account the State was not 'ent-itled' to the forests produce from such private forests. Therefore, the notification issued under section 29 could have no application to such private forests. The State Government was, therefore, competent to issue the two noti-fications under section 4 of the Himachal Pradesh Private Forest Act, 1954, and it was not justified in annulling them on the erroneous premise that the said lands belonged to the State Government. The Division Bench, therefore, ought not to have reversed the trial court on this point.

In the result this appeal must succeed. We allow the appeal and set aside the judgment and decree of the Division Bench of the High Court. We would have been inclined to restore the decree of the Trial Court but counsel for the appellant-plaintiff made a statement at the bar that in view of the provisions of the Himachal Pradesh Ceiling on ..

Land Holdings Act, 1972, the question of granting such a declaration does not survive.

He, however, submitted that the State Government should be directed to refund the amount of Rs.3,36 lakhs with interest which was deposited by defendant No. 3 in the Treasury under an agreement dated 19^th August, 1961, entered into with the President of India through the Secretary, Forest Department. Clause (VI) thereof provides that in the event the appellant-plaintiff succeeds in establishing his title to the trees in question, the said amount would be refunded subject to a deduction of 15% towards royalty. However, defendant No. 3 filed a suit against the appellant for the recovery of the said amount which suit ended in a compromise decree whereunder the appellant-plaintiff paid the 3^rd defendant Rs.2.51 lakhs in full and final satisfac-tion of his claim reserving unto him the right to recover the deposited amount from the State Bank. We, therefore, told that the plaintiff-appellant is entitled to the refund of Rs.3.36 lakhs with interest at 9% per annum subject to deduction of royalty calculated at 15%

The appellant-plaintiff has also claimed refund of Rs.4.60 lakhs with interest lying in fixed deposits with the State Bank of India, Shimla in the name of the Registrar of the High Court. The Division Bench of the High Court by its order dated 14^th December, 1970 directed that the trees included in the Local Commissioner's report dated 7^th Decem-ber, 1980 be sold by public auction and the sale proceeds be deposited in the State Bank of India, Shimla till the dis-posal of the appeal. Accordingly, the sale proceeds were deposited out of which the appellant-plaintiff was permitted to withdraw a sum of Rs.2.60 lakhs after furnishing surety. The balance of Rs.4.60 lakhs is lying in fixed deposits and the appellant-plaintiff is entitled to the refund thereof. We, therefore, direct that the said amount together with interest accrued thereon shall be refunded to the appellant-plaintiff

The appellant-plaintiff also made a claim in respect of the value of the trees cut and sold by the Forest Department during the year 1951-52 when the appellant was a minor. The estimated value of these trees is stated to be Rs. 1.50 lakhs. However, no claim was made in respect thereof in the suit filed by the appellant-plaintiff which has given rise to this appeal. If the appellant-plaintiff was entitled to the said amount he ought to have claimed the same in the suit filed in 1964. We, therefore, do not entertain this claim.

The appellant-plaintiff has also claimed a refund with interest of the market value of trees totalling 10,505 cut and sold by the Forest Department during the period from 1980 to 1985 notwithstanding the order of this Court dated 17^th October, 1979. However, in view of the fact that Hima-chal Pradesh Ceiling on Land Holdings Act, 1972 has since intervened we do not entertain this claim in the present proceedings. The refusal to entertain this claim will not debar the plaintiff from seeking any relief that is avail-able to him under the 1972 Act.

In the ultimate, we direct the State Government to refund Rs.3.36 lakhs with interest at 9% per annum thereon to the appellantplaintiff after deducting royalty at 15%. We also direct refund of the amount of Rs.4.60 lakhs with interest accrued thereon lying in fixed deposits in the State Bank of India, Shimla under the High Court's order dated 14^th December, 1972. We grant three months time to comply with above directions. The appeal is allowed accord-ingly but we make no order as to costs.

In view of the above, the CMP will also stand disposed of accordingly.

R.S.S. Appeal allowed.