judgement:
ivil Appeal No. 1755 & 1756 of 1982 From the Judgment and Order dated 11.12.1981 of the Delhi High Court inC.M.P.No. 41 to 1981.
P.R. Andhyarjina, D.N. Misra and M.P. Baroocha for the Appellant.
G. Ramaswamy, Additional Solicitor General, V.P. Singh and Miss Sushma Relan for the Respondents.
960 The Judgment of the Court was delivered by DUTT, J.
These two appeals by special leave one pre ferred by the National Agricultural Co operative Marketing Federation of India Ltd (for short 'NAFFD ') and the other by Alimenta S.A. (for short 'Alimenta '), a Swiss Company are both directed against the judgment of the Delhi High Court dated December 11, 1981 whereby the application of NAFFD under section 33 of the , has been allowed in part.
A contract dated January 12, 1980 was entered into by and between the parties, namely, NAFED and Alimenta for the sale and supply of 5,000/8,000 M.T. of HPS groundnut kernels Jaras.
After the usual terms as to quality, quantity, price, etc., the contract provided in clause 11 thereof as follows: "Other terms and conditions as per FOSFA 20 contract terms.
" The expression 'FOSFA ' means the Federation of Oils, Seeds and Fats Association Ltd. Subsequently, another contract dated April 3, 1980 was entered into between the parties in respect of 4,000 metric tonnes of groundnut kernels.
Clause 9 of this contract provided as follows: "All other terms and conditions for supply not specifically shown and covered hereinabove shall be as per previous contract signed between us for earlier supplies of H.P.S." The FOSFA 20 contract contains an arbitration clause which is as follows: "ARBITRATION: Any dispute arising cut of this contract, including any question of law arising in connection there with, shall be referred to arbitration in London (or else where if so agreed) in accordance with the Rules of Arbitra tion and Appeal of the Federation of Oils, Seeds and Fats Association Limited, in force at the date of this contract and of which both the parties hereto shall be deemed to be cognizant.
Neither party hereto, nor any persons claiming under either of them shall bring any action or other legal proceedings against the other of them in respect of any such dispute 961 until such dispute shall first have been heard and deter mined by the arbitrators, umpire or Board of Appeal (as the case may be) in accordance with the Rules of Arbitration and Appeal of the Federation, and it is hereby expressly agreed and declared that the obtaining of an Award from the arbi trators, umpire, or Board of Appeal (as the case may be), shall be a condition precedent to the right of either party hereto or of any person claiming under either of them to bring any action or other legal proceedings against the other of them in respect of any such dispute.
" Disputes and differences arose between the parties.
Alimenta alleged that NAFED committed breach of their obli gations under both the contracts and sought to commence arbitration proceedings.
On the other hand, on March 19, 1981, NAFED filed a petition in the Delhi High Court under section 33 of the alleging, inter alia, that there was no valid arbitration agreement between the parties.
It was contended by NAFED that when it agreed in clause 11 of the first contract that the parties would be governed by the terms and conditions of FOSFA 20 contract, it only had in mind such terms and conditions as would govern the relationship between the parties.
Further, the fact that there was an arbitration clause in FOSFA 20 con tract came as a complete surprise to NAFED.
In other words, it was sought to be contended that NAFED was not at all aware of any arbitration clause in FOSFA 20 contract and, accordingly, it could not agree to incorporate any such arbitration clause in the contracts in question.
The said petition under section 33 of the was opposed by Alimenta.
A learned Single Judge of the High Court came to the finding that in view of the fact that NAFED had been nomi nated as the canalising agent for export of HPS groundnut under the provisions of the Export Control Order by the Central Government, it would not be unjustified to assume that the Senior Manager of NAFED was well aware of the foreign trade in groundnut and the implications of reference to FOSFA 20 contract when he put his signature to the con tract in question.
The learned Judge could not believe that the Manager of NAFED was not aware of the terms of FOSFA 20 contract.
Accordingly, the plea of NAFED that it was not aware of the existence of an arbitration clause in FOSFA 20 contract was overruled.
The learned Judge held that the arbitration clause in FOSFA 20 contract was incorporated into the first contract dated January 12, 1980 by virtue of clause 11 thereof providing "other terms and conditions as per FOSFA 20 contract terms".
962 So far as the second contract dated April 3, 1980 is concerned, it was pointed out by the learned Judge that it did not make any mention of FOSFA 20 contract and all that was stated in clause 9 thereof was that all other terms and conditions for supply not specifically shown and covered therein should be as per previous contract signed between the parties for similar supply of HPS.
The learned Judge took the view that only those terms and conditions which were referred to or connected with and germane to the sup ply, ,had been made applicable from the earlier contract that is to say, the first contract dated January 12, 1980.
Further, it was observed that a term about arbitration was not incidental to supply of goods and it was difficult to read from the provisions of clause 9 of the second contract that the arbitration clause was lifted from there and made a part of the same.
Upon the said findings, the learned Judge allowed the petition under section 33 of the in so far as it related to the second contract dated April 13, 1980.
It was held that no arbitration agreement existed between the parties and, as such, none of them was entitled to seek reference to arbitration with regard to the first contract, and that the same was governed by the arbitration clause as having been incorporated therein from the FOSFA 20 contract.
The petition under section 33 was disallowed so far as the first contract was concerned.
Hence, these two appeals one by NAFED against the judgment of the learned Judge disallowing the petition under section 33 in respect of the first contract and the other by Alimenta in so far as it allowed the petition relating to the second contract.
We may at first deal with the appeal preferred by the appellant NAFED relating to the first contract.
The question is whether by clause 11 in the first contract, the arbitra tion clause in FOSFA 20 contract can be said to have been incorporated into the contract.
It is now well established that the arbitration clause of an earlier contract can, by reference, be incorporated into a later contract provided, however, it is not repugnant to or inconsistent with the terms of the contract in which it is incorporated.
Mr. G. Ramaswamy, learned Additional Solicitor General appearing on behalf of the appellant, has strenuously urged that the High Court was wrong in holding that the arbitration clause in the FOSFA 20 contract was incorporated into the first con tract by virtue of the incorporation clause.
He has drawn our attention to the second illustration at page 46 of Russell on Arbitration, Twentieth Edition.
The illustration refers to the decision of Lord Esher M.R. in Hamilton & Co. vs Mackie & Sons, We have looked into that decision as much reliance has been placed thereon on behalf of NAFED.
In that case a bill of lading 963 contained the words "all other terms and conditions as per charterparty".
The charterparty contained an arbitration clause.
It was contended on behalf of the ship owners that the arbitration clause in the charterparty was incorporated into the bill of lading.
In overruling the said contention Lord Esher M.R. Observed: "Where there was in a bill of lading such a condition as this, 'all other conditions as per charterparty ', it had been decided that the conditions of the charterparty must be read verbatim into the bill of lading as though they were there printed in extenso.
Then if it was found that any of the conditions of the charterparty on being so read were inconsistent with the bill of lading they were insensible, and must be disregarded.
The bill of lading referred to the charterparty, and therefore, when the condition was read in, 'All disputes under this charter shall be referred to arbi tration, 'it was clear that condition did not refer to disputes arising under the bill of lading, but to disputes arising under the charterparty.
The condition therefore was insensible, and had no application to the present dispute, which arose under the bill of lading.
" According to Lord Esher M.R., the arbitration clause in charterparty "all disputes under this charter shall be referred to arbitration", if incorporated into the bill of lading would be quite insensible because of the words "under this charter".
The arbitration clause was, therefore, meant only for the charterparty and not for the bill of lading.
In a Full Bench decision of the Calcutta High Court in Dwarkadas & Co. vs Daluram Gaganmull, AIR 1951 Cal 10 F.B., the said observation of Lord Esher M.R. was considered by Harries, CJ.
The learned Chief Justice also took the view that if the arbitration clause in the charterparty was imported into the bill of lading it would be quite meaning less because no dispute under the charter could arise in the contract evidenced by the bill of lading.
According to the learned Chief Justice, if the words of the arbitration clause in the charterparty had read "all disputes under this contract shall be referred to arbitration", then if that term was transported into the bill of lading, it would be a perfectly sensible and reasonable term, for, once it had imported the phrase "all disputes under this contract", it would refer to all disputes arising under the bill of lad ing.
There would, therefore, be nothinhg inconsistent be tween such a term and the terms of the bill of 964 lading and that being so, cases similar to the case of Hamilton & Co. vs Mackie & Sons (supra) would have no appli cation to the case.
This view was also taken by the other learned Judges of the Full Bench.
In our opinion, Harries, C J, had taken a very reasona ble and sensible view.
It is true, as pointed out by Lord Esher M.R., that the expression "all disputes under this charter", if incorporated into the bill of lading, would be quite insensible.
But if, the clause had been "any dispute under this contract", then after incorporation into the bill of lading the words "this contract" would only mean the bill of lading into which it had been incorporated.
In the in stant case, as has been already noticed, the arbitration clause in the FOSFA 20 contract provides "any dispute aris ing out of this contract" and, as such, there is no diffi culty in the incorporation of the arbitration clause into the first contract, for, the words "this contract" would mean the first contract into which it has been incorporated.
Such incorporation would be quite intelligible and not inconsistent with the terms of the first contract.
There is, therefore, no substance in the contention made on behalf of the appellant on the basis of the decision in Hamilton & Co. vs Mackie & Sons, (supra).
It is next contended by the learned Additional Solicitor General that the arbitration clause in FOSFA 20 contract not being germane to the subject matter of the first contract, it cannot be said to have been incorporated therein.
It is pointed by him that the FOSFA 20 contract is a CIF contract relating to cost, insurance and freight, while the first contract is a f.o.b. contract.
It is, accordingly, submitted by the learned Counsel that the arbitration clause is not germane to the subject matter of the first contract.
In support of his contention he has placed much reliance upon the decision of the Court of Appeal in the case of The Annefield, [1971] 1 AII.E.R. 394.
In that case the question was whether the arbitration clause in the charterparty was incorporated into the bill of lading by ' virtue of the incorporation clause.
Clause 39, which was the arbitration clause, contained the words "All disputes from time to time arising out of this contract".
In considering the question Lord Denning M.R., referred to the decision in The N]egos, [935] AII.E.R. Rep. 863, where in the course of the discus sion, it transpired that these clauses in the charterparty and bill of lading had been in existence since 1914 and, it had always been held that the arbitration clause was not incorporated in the bill of lading.
On behalf of the ship owners in that case it was argued that if the arbitration clause 39 was incorporated into the bill of lading, the expression "this contract" in clause 39 would then be the contract evidenced by the bill 965 of lading.
In other words, the arbitration clause must be read in its bill of lading context.
This contention was made on the basis of the observation made by Lord Esher M.R., as extracted above.
The contention also finds support from the observation of Harries, C J, in Dwarka Das 's case (supra).
Lord Denning M.R. took the view that a clause which is directly germane to the subject matter of the bill of lading that is, to the shipment, carriage and delivery of goods, could and should be incorporated into the bill of lading contract, even though it might involve a degree of manipula tion of the words in order to fit exactly the bill of lad ing.
But, if the clause was one which was not thus directly germane, it should not be incorporated into the bill of lading contract unless it was done explicitly in clear words either in the bill of lading or in the charterparty.
It was, however, held by Lord Denning M.R. that an arbitration clause was not directly germane to the shipment, carriage and delivery of goods.
So, it was not incorporated by gener al words in the bill of lading.
Relying upon the decision in The Annefteld, it is sub mitted on behalf of the appellant that the arbitration clause in FOSFA 20 contract is not germane to the subject matter of the first contract and, accordingly, it was not incorporated into the first contract.
We are unable to accept the contention.
It has already been noticed earlier that there has been a long continued practice in England that the arbitration clause is not incorporated into the bill of lading by general words, unless it is explicitly done in dear words either in the bill of lading or in the charterparty.
In the instant case, we are not, however, concerned with a charterparty and a bill of lading contract.
Even assuming that the subject matters of FOSFA 20 contract and the f.o.b. contract are different, we do not think that any question as to the germaneness of the arbitration clause to the subject matter would be relevant.
It has been found by the learned Judge of the High Court that the Manager of NAFED, who had signed the first contract, was aware of the terms of the FOSFA 20 contract inducting the arbitration clause contained therein.
It is, therefore, manifestly dear that by the incorporation of clause 11 in the tint contract, the appellant intended to incorporate into it the arbitra tion clause of FOSFA 20 contract.
Thus where, as in the instant case, the parties are aware of the arbitration clause of an earlier contract, the subject matter of which is different from the contract which is being entered into by them, incorporates the terms of the earlier contract by reference by using general words, we do not think there would be any bar to such incorporation merely because the subject matters of the two contracts are different, unless, however, the incorporation of the arbitration clause will be 966 insensible or unintelligible, as was in Hamilton & Co. vs Mackie & Sons, (supra).
In the instant case, the arbitration clause in FOSFA 20 contract will fit in the first contract.
In other words, it will not be either insensible or unintel ligible.
In our opinion, therefore, the High Court was tight in holding that the arbitration clause in FOSFA 20 contract was incorporated into the first contract.
In the other appeal which has,been preferred by Alimen ta, it has been held by the High Court that there has been no incorporation of the arbitration clause into the second contract.
In the second contract, clause 9 provides "all other terms and conditions for supply not specifically shown and covered hereinabove shall be as per previous contract signed between us for earlier supplies of HPS".
There is a good deal of difference between clause 9 of this contract and clause 11 of the first contract.
Clause 11 has been couched in general words, but clause 9 refers to all other terms and conditions for supply.
The High Court has taken the view that by clause 9 the terms and conditions of the first contract which had beating on the supply of HPS were incorporated into the second contract, and the term about arbitration not being incidental to supply of goods, could not be held to have been lifted as well from the first contract into the second one.
It is, however, contended on behalf of the appellant that the High Court was wrong in its view that a term about arbitration is not a term of supply of goods.
We do not think that the contention is sound.
It has been tightly pointed out 'by the High Court that the normal incidents of terms and conditions of supply are those which are connected with supply, such as, its mode and process, time factor, inspection and approval, if any, reliability for transit, incidental expenses etc.
We are unable to accept the conten tion of the appellant that an arbitration clause is a term of supply.
There is no proposition of law that when a con tract is entered into for supply of goods, the arbitration clause must form part of such a contract.
The parties may choose some other method for the purpose of resolving any dispute that may arise between them.
But in such a contract the incidents of supply generally form part of the terms and conditions of the contract.
The first contract includes the terms and conditions of supply and as clause 9 refers to these terms and conditions of supply, it is difficult to hold that the arbitration clause is also referred to and, as such, incorporated into the second contract.
When the incor poration clause refers to certain particular terms and conditions, only those terms and conditions are incorporated and not the arbitration clause.
In the present case, clause 9 specifically refers to the terms and conditions of supply of the first 967 contract and, accordingly, only those terms and conditions are incorporated into the second contract and not the arbi tration clause.
The High Court has taken the correct view in respect of the second contract also.
In the result, the judgment of the High Court is af firmed and both these appeals are dismissed.
There will, however, be no orders as to costs.
M.L.A Appeals dis missed.

summary:
The appellant and the respondent entered into two con tracts on two different dates for supply of HPS groundnut Kernels jaras.
After the usual terms as to quality, quanti ty, price etc., the first contract provided in clause II thereof "that other terms and conditions as per FOSFA 20 contract terms.
" However, clause 9 of the second contract did not make any mention of FOSFA 20 contract and all that was stated was that all other terms and conditions for supply not specifically shown and covered therein should be as per previous contract signed between the parties for similar supply of HPS groundnut.
The 'FOSFA 20 contract ' contained an arbitration clause to the effect that any dispute arising out of this contract, including any question of law arising in connection therewith, shall be referred to arbitration and neither party, hereto, nor any persons claiming under either of them shall bring any action or other legal proceedings against the other in respect of any such dispute until such dispute shall first have been heard and determined by the arbitrators.
Disputes and differences arose between the parties.
The appellant in Civil Appeal No. 1755/1982 alleged that the respondent therein committed breach of their obligations under both the contracts and sought to commence arbitration proceedings.
The respondent on the other hand filed a peti tion in the High Court under s.33 of the alleging that there was no valid arbitration agreement between the parties and contended that when it agreed in clause 11 of the first contract that the parties would be governed by the terms and conditions of 'FOSFA 20 contract ', it only had in mind such terms and 958 conditions as would govern the relationship between the parties and the fact that there was an arbitration clause in FOSFA 20 contract came as a complete surprise to the re spondent.
This petition was opposed by the appellant.
A Single Judge of the High Court held that in view of the fact that the respondent had been nominated the canalis ing agent for export of HPS groundnut, it would not be unjustified to assume that the respondent was well aware of the foreign trade in groundnut and the implications of reference to 'FOSFA 20 contract ' when he put his signatures to the contract in question; that the arbitration clause in FOSFA 20 contract was incorporated into the first contract by virtue of clause 11 providing 'other terms and conditions as per FOSFA 20 contract terms '.
With regard to the second contract it was held that it did not make any mention of FOSFA 20 contract and all that was stated in clause 9 there of was that all terms and conditions for supply not specifi cally shown and covered therein should be as the previous contract signed between the parties for similar supply of HPS.
It was accordingly held that there existed no arbitra tion agreement between the parties and, as such, none of them was entitled to seek reference to arbitration; and that a term about arbitration was not incidental to supply of goods and it was difficult to read from the provisions of clause 9 of the contract that the arbitration clause was lifted from there and made a part of the same.
The applications under s.33 of the was allowed in so far as it related to the second contract, and disallowed so far as the first contract was concerned.
Both parties filed appeals to this Court.
Dismissing the appeals, HELD: 1(i) The arbitration clause of an earlier contract can, by reference, be incorporated into a later contract provided however, it is not repugnant to or inconsistent with the terms of the contract in which it is incorporated.
[962F G] 1(ii) Where the parties are aware of the arbitration clause of an earlier contract, the subject matter of which is different from the contract which is being entered into by them, incorporating the terms of the earlier contract by reference by using general words, there would be no bar to such incorporation merely because the subject matters of the two contracts are different, unless however, the incorpora tion of the 959 arbitration clause will be insensible or unintelligible.
[965G H; 966A] 1 (iii) There is no proposition of law that when a contract is entered into for supply of goods, the arbitra tion clause must form part of such a contract.
The parties may choose some other method for the purpose of resolving any dispute that may arise between them.
But in such a contract the incidents of supply generally form part of the terms and conditions of the contract.
[966F G] 1 (iv) When the incorporation clause refers to certain particular terms and conditions, only those terms and condi tions are incorporated and not the arbitration clause.
[967A] 2.
The normal incidents of terms and conditions of supply are those which are connected with supply, such as, its mode and process, time factor, inspection and approval, if any, reliability for transit, incidental expenses etc.
An arbitration clause is not a term of supply.
[966E F] In the instant case, there is a good deal of difference between clause 9 of the second contract and clause 11 of the first contract.
Clause 11 has been couched in general words, but clause 9 refers to all other terms and conditions for supply.
The first contract includes the terms and conditions of supply and as clause 9 refers to these terms and condi tions of supply, it is difficult to hold that the arbitra tion clause is also referred to and, as such, incorporated into the second contract.
[966C D] Dwarkadas & Co. vs Daluram Gaganmull, AIR 1951 Cal 10 F.B., approved.
Hamilton & Co. vs Mackie & Sons, ,The Annefield, & The Njegos, , held inapplicable.


judgement:
Civil Appeal Nos 597 599 (NT) of 1985 From the Judgment and order dated 3.5.1983 of the Punjab & Haryana High Court in Income Tax Reference Nos. 61, 63 and 64 of 1977 Dr. Devi Pal, V.S. Desai, O.C. Mathur, Ms A K. Verma, Ms. Meera Verma and section Sukumaran for the Appellant.
S.C. Manchanda and Ms. A Subhashini for the Respondent The Judgment of the Court was delivered by PATHAK, J.
These appeals by special leave are directed against the judgment of the High Court of Punjab and Haryana holding that the sale of insulated copper wires manufactured by the appellant 480 assessee does not entitle it to the benefits conferred by sections 33(1)(iii) (c)(A) and 80E of the Income Tax Act, 1961 for the assessment years 1966 67 and 1967 68 and the benefits conferred by sections 33(1)(b)(B)(i) and 80I of the Income tax Act, 1961 for the assessment years 1968 69 to 1971 72 Section 33 of the Income Tax Act, 1961 provides for the grant of development rebate.
Prior to April 1, 1968, section 33(1)(iii)(c)(A) of the Income Tax Act, 1961 provided: "(1) In respect of a new ship acquired or new machinery or plant (other than office appliances or road transport vehicles) installed after the 31st day of March, 1954, which is owned by the assessee and is wholly used for the purposes of the business carried on by him, a sum by way of development rebate, equivalent to (i) . . . . . . . . (ii) . . . . . . . . (iii) in the case of machinery or plant installed after the 31st day of March, 1961 (a) . . . . . . . . (b) . . . . . . . . (c) where the machinery or plant is installed after the 31st day of March, 1965 (A) for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule (a) thirty five per cent, of the actual cost of the machinery or plant to the assesee, where it is installed before the 1st day of April, 1970.
and (b) twenty five per cent, of such cost, where 481 it is installed after the 31st day of March, 1970.
(B) . . . . . . shall, subject to the provisions of section 34, be allowed as a deduction in respect of the previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year.
" This provision was substituted, with effect from April 1, 1968, by the present provision which reads: "33(1)(a) In respect of a new ship or new machinery or plant (other than office appliances or road transport vehicles) which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section and of section 34, be allowed a deduction in respect of a previous year in which the ship was acquired or the machinery or plant was installed or, if the ship, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, a sum by way of development rebate as specified in clause (b).
(A) . . . . . . . . (B) in the case of machinery or plant, (i) where the machinery or plant is installed for the purposes of business of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule, (a) thirty five per cent of the actual cost of the machinery or plant to the assessee, where it is in stalled before the 1st day of April, 1970, and (b) twenty five per cent of such cost, where it is installed after the 31st day of March, 1970.
482 These provisions relate to development rebate.
A deduction was also available to an assessee in respect of profits and gains from specified industries in the case of certain companies prior to April 1, 1968.
Section 80E provided: "80E (1) In the case of a company to which this section applies, where the total income (as computed in accordance with the other provisions of this Act) includes any profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or ( more of the articles or things specified in the list in the Fifth Schedule, there shall be allowed a deduction from such pro fits and gains of an amount equal to eight per cent.
thereof in computing the total income of the company.
" Section 80E was deleted with effect from April 1, 1968 and was substituted by section 80 I which provides: "80 I(1) In the case of a company to which this section ap plies, where the gross total income includes any profits and gains attributable to any priority industry, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction from such profits and gains of an amount equal to eight per cent, thereof, in computing the total income of the company.
" It is not disputed between the parties that the assessee is a company to which the provisions of section 80E and subsequently of section 80I will apply.
Section 80I, it may be noted, was deleted by the Finance Act, 1972 with effect from April 1, 1973.
With effect from April 1, 1968 the expression 'priority industry ' was defined in section 80B(7) as meaning: "the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule or the business of any hotel where such business is carried on by an Indian company and the hotel is for the time being approved in this behalf by the Central Government.
" 483 The word 'Sixth ' was substituted for 'Fifth ' by the Finance Act 1968 A with effect from April 1, 1969.
With effect from April 1, 1964 the Fifth Schedule set forth a list of articles and things and items 7, 17 and 24 which possess some relevance to this case read as follows: "(7) Equipment for the generation and transmission of electricity including transformers, cables and transmission towers, (17) Electronic equipment, namely, radar equipment, computers, electronic accounting and business machines, electronic communication equipment, electronic control instruments and basic components, such as valves, transistors, resisters, condensors, coils, magnetic materials and microwave components, (24) Component parts of the articles mentioned in items Nos.
(4), (5), (7) and (9), that is to say, such parts as are essential for the working of the machinery referred to in the items aforesaid and have been given for that purpose some special shape or quality which would not be essential for their use for any other purpose and are in comp lete finished form and ready for fitment.
" The Sixth Schedule which replaced the Fifth Schedule with effect from April 1, 1969 contained identical items 7,17 and 24.
These appeals relate to the assessment years 1966 67 to 1971 72.
The assessee carries on the business of manufacture and sale of insulated copper wires.
Before the Income Tax officer, it claimed that it constituted a priority industry for the purposes of the provisions of sections 33(1)(iii)(c)(A) and 80E read with items 7, 17 and 24 of the Fifth Schedule of the Income Tax Act, 1961 for the first two years and sections 33(1)(b)(B)(i) and 80 1 read with items 7, 17 and 24 of the Fifth or the Sixth Schedule, as the case may be, of the Income Tax Act, 1961 for the latter four years.
The assessee claimed that it was entitled to the benefits conferred by those provisions for the aforesaid assessment years as a 'priority industry '.
It asserted that the wires manufactured by it were covered by the word 'cables ' employed in the articles and things specified in items 7, 17 and 24 of the Fifth Schedule 484 for the assessment years 1966 67, 1967 68 and 1968 69 and items 7, 17 and 24 of the Sixth Schedule of the Income Tax Act for the assessment years 1969 70 to 1971 72.
It produced expert evidence in support of its claim.
The Income Tax officer rejected the claim made by the assessee.
An appeal to the Appellate Assistant Commissioner was dismissed.
The assessee then appealed to the Income Tax Appellate Tribunal.
The Appellate Tribunal allowed the six appeals and held that the assessee was entitled to the benefits claimed by it as a 'prority industry '.
It noted that although the assessee had based its claim on items 7, 17 and 24 of the Schedules, the claim was emphatically pressed in the hearing before it under item 7 alone.
The question before it then was limited to the point whether the wires manufactured by the asses see fell within item 7.
In disposing of the appeals, the Appellate Tribunal adverted to its finding in the appeals for the two immediately preceding assessment years 1964 65 and 1965 66.
In its appellate order for the assessment year 1964 65 it found that the assessee manufactured aluminium cables which were used in the transmission of electricity and held that, therefore, it was entitled to the benefit of the Fifth Schedule relevant for those two assessment years.
In the appeal pertaining to the assessment year 1965 66 it considered the matter again and upheld the claim in view of its order for the preceding assessment year.
It noted that the Revenue had accepted the orders and had not questioned them in reference.
It found from a perusal of the Industrial Licences on the basis of which the assessee was operating that there was no change in the nature or type of the goods manufactured by it during the six assessment years before it in appeal.
It observed that when it referred to aluminium cables in its earlier orders it should have described them as copper and aluminium cables.
Having regard to the material before it, the Appellate Tribunal found no reason to change its opinion from the view taken in the preceding assessment years that the manufacture of the cables attracted the benefits claimed by the assessee.
Thereafter, at the instance of the Revenue, the Appellate Tribunal made a reference for the six assessment years to the High Court of Punjab and Haryana for its opinion on the following two questions: "Whether, on the facts and in the circumstances of the case, the assessee company was entitled to the benefits conferred by the provisions of sections 33(1)(iii)(c)(a) and 80E of the Income Tax Act, 1961? 485 2.
Whether on the facts and in the circumstances of the case, the assessee company was entitled to the benefits conferred by the provisions of sections 33(1)(b)(B)(i) and 80 I of the Income Tax Act, 1961?" The High Court answered those questions in favour of the Revenue and against the assessee.
The High Court differed from the Appellate Tribunal and took the view that in the cases for the assessment years under consideration the Income Tax officer had come into possession of fresh facts indicating that the assessee was manufacturing copper wires of a particular type known as winding wires which were exclusively used in the manufacture of different types of gadgets and not for the purpose of generation and transmission of electricity.
It observed that the wires were not meant for the generation and transmission of electricity, and they would fall within item 7 only if they were meant solely for that purpose and not otherwise.
In these appeals it is contended on behalf of the assessee that the High Court has misconstrued the facts found by the Appellate Tribunal and has, therefore, erroneously held that the cables manufactured by the assessee do not fall within the scope of item 7.
It is urged also that the true test for determining whether the cables could be used in the generation and transmission of electricity was that laid down by the Madras High Court in Commissioner of Income Tax, Tamil Nadu V vs Dhandayuthapani Foundry (Private) Ltd., [1980] 123 l.
T.R. 709 where in considering the question whether an implement could be described as an agricultural implement it was observed that the real test was not whether it was exclusively used for agricultural purposes but whether it was commonly so used and whether it was intimately and directly connected with agricultural operations.
The point before us is whether the cables manufactured by the assessee qualify for inclusion in item 7 of the Fifth Schedule or the Sixth Schedule, as the case may be having regard to the relevant assessment year.
Item 7 speaks of equipment for the generation and transmission of electricity, and such equipment includes transformers, cables and trans mission towers.
To appreciate what is comprehended in item 7, it is permissible to refer to a related entry, item 24, which refers to component parts of the articles mentioned, inter alia, in item 7.
When item 24 is read in its entirety, it is apparent that the component parts mentioned therein are component parts of what can be described as machinery.
Then reading item 7 in conjunction with item 24, the con 486 clusion is inescapable that when item 7 speaks of equipment, reference is intended to machinery needed for the generation and transmission of electricity.
The item envisages complete self contained units of equipment, units which on being put together or connected together constitute the apparatus for the generation and transmission of electricity.
Viewed in that context, the reference in item 7 to cables must mean cables identifiable as a complete self contained unit in themselves as a distinct unit of equipment when employed in the generation and transmission of electricity.
A cable does not fall within item 7 if it is merely a component, or part of a component, of a unit of equipment or machinery.
The High Court is right in our opinion, in holding that the Appellate Tribunal erred in ignoring the fresh evidence gathered by the Income Tax officer and considered by the Appellate Assistant Commissioner in the assessment proceedings under consideration.
The sales accounts of the assessee showed that the assessee had sold winding wires used in the manufacture of different types of electrical gadgets and for the purpose of transmission of electricity.
These are winding wires, employed in coils, winding of armatures, etc.
and can not be identified at all as cables in the sense in which item 7 conceives of cables.
That being so, the test propounded in Commissioner of Income Tax, Tamil Nadu V vs Dhandayuthapani Foundry (Private) Ltd. (supra) does not call for consideration.
In the circumstances, the questions referred to the High Court for its opinion were rightly answered in the negative, in favour of the Revenue and against the assessee.
In the result, the appeals are dismissed with costs.
M.L.A. Appeals dismissed.

dataset_name: IN-Abs

summary:
Section 33 of the Income Tax Act, 1961 provides for the grant of development rebate.
The appellant assessee, who carried on the business of manufacture and sale of insulated copper wires, claimed for the assessment years 1966 67 to 1971 72 that it was entitled to the benefits conferred by sections 33(i)(iii) (c)(A) and 80E read with items 7, 17 and 24 of the Fifth Schedule and sections 33(i)(b)(B)(i) and 80 I read with items 7, 17 and 24 of the Fifth or the Sixth Schedule, as the case may be, for the aforesaid assessment years as a "priority industry".
It contended before the Income Tax officer that the wires manufactured by it were covered by the word "cables" employed in the articles and things specified in items 7, 17 and 24 of the Fifth Schedule for the assessment years 1966 67, 1967 68 and 1968 69 and items 7, 17 and 24 of the Sixth Schedule of the Income Tax Act for the assessment years 1969 70 to 1971 72.
The Income Tax officer rejected the claim made by the appellant.
The matter ultimately went before the High Court in a reference.
The High Court answered the question in favour of the Revenue and against the appellant assessee on the ground that the wires were not meant for the generation and transmission of electricity and they would fall within item 7 only if they were meant solely for that purpose and not otherwise.
Dismissing the appeal, ^ HELD: 1.
Item 7 of the Fifth Schedule speaks of equipment for the generation and transmission of electricity and such equipment includes transformers, cables and transmission towers.
To appreciate what is comprehended in item 7, it is permissible to refer to a related 479 entry, item 24, which refers to component parts of the articles mentioned, inter alia in item 7.
When item 24 is read in its entirety, it is apparent that the component parts mentioned therein are component parts of what can be described as machinery.
Then reading item 7 in conjunction with item 24, the conclusion is inescapable that when item 7 speaks of equipment, reference is intended to machinery needed tor the generation and transmission of electricity.
The item envisages complete self contained units of equipment, units which, on being put together or connected together, constitute the apparatus for the generation and transmission of electricity.
Viewed in that context, the reference in item 7 to cables must mean cables identifiable as a complete self contained unit in themselves as a distinct unit of equipment when employed in the generation and transmission of electricity.
A cable does not fall within item 7 if it is merely a component, or part of a component, of a unit of equipment or machinery.[485F H; 486A C] Commissioner of Income Tax, Tamil Nadu V vs Dhandayuthapani Foundry (Private) Ltd., [1980] 123ITR 709, inapplicable.
In the instant case, the sales accounts of the asessee showed that the assessee had sold winding wires used in the manufacture of different types of electricity.
These are winding wires, employed in coils, winding of armatures, etc.
and cannot be identified at all as cables in the sense in which item 7 conceives of cables.
[486D E]


judgement:
Civil Appeal No 797 of 1976.
From the Judgment and Order dated 14.7.1972 of the Calcutta High Court in Appeal No. 59 of 1971 V.C. Mahajan, Mrs. Subhadra and C.V. Subba Rao for the Appellants.
Harish N. Salve, Ravinder Narain, P.K. Ram, D.N. Mishra and K. Sukumaran for the Respondent.
The Judgment of the Court was delivered by THAKKAR, J.
Whether Section 12(2)1 of Foreign Exchange Regulation Act of 1947 (Act) designed to prevent wholesale or partial evasion of repatriation of earnings from export of goods covers only sale proceeds of goods exported "for sale* ' as held by the High Court of Calcutta by the judgment under appeal, or to sale proceeds of goods exported "on sale" in the context of sales completed before export also, as held by the Madras High Court2 and as contended by the appellants is the problem.
"12(2) Where any export of goods has been made to which a notification under sub section (1) applies, no person entitled to sell, or procure the sale of the said goods shall, except with the permission of the Reserve Bank, do or refrain from doing anything or take or refrain from taking any action which has the effect of securing that (a) the sale of the goods is delayed to an extent which is unreasonable having regard to the ordinary course of trade, or (b) payment for the goods is made otherwise than in the prescribed manner or does not represent the full amount payable by the foreign buyer in respect of the goods, sub ject to such deductions if any, as may be allowed by the Reserve Bank, or is delayed to such extent as aforesaid.
Provided that no proceedings in respect of any contravention of this sub section shall be instituted unless the pre scribed period has expired and payment for the goods repre senting the full amount as aforesaid has not been made in the prescribed manner.
" 2. R. Venkatasubbu and Ors.
vs The Director of Enforcement.
Enforcement Directorate, New Delhi and Anr., ILR Vol.
3MAD 1968 p.18. 985 The learned Single Judge of the Calcutta High Court dismissed a Writ Petition instituted by the Respondent Company and refused to quash two show cause notices dated November 5, 1966 issued under Section 12 (2) of the Act as it stood at the material time on taking the view canvassed by the appellants in this appeal.
A Division Bench of the High Court however allowed the appeal preferred by the Respondent Company, reversed the order of the learned Single Judge dismissing the Writ Petition, and issued a Writ of Mandamus commanding the competent authorities under the Act (appellants herein) to forbear from giving effect to the said notices and from commencing any proceedings pursuant thereto.
The competent authorities under the Act have ap proached this Court by way of the present appeal by a cer tificate under Article 133 (1)(a) of the Constitution of India.
The hub of the argument addressed by the respondent company, which found favour with the Calcutta High Court, but failed to impress the Madras High Court, is the expres sion "no person entitled to sell or procure the sale of the said good" employed by the legislature in the opening part of Section 12(2) of the Act, which to the material extent deserves to be quoted: "12(2) Where any export of goods has 'been made to which a notification under sub section (1) applies, no person enti tled to sell, or procure the sale of the said goods shall, except with the permission of the Reserve Bank, do or re frain from doing anything or take or refrain from taking any action which has the effect of securing that . " The argument runs thus: Section 12 (2) of the Foreign Exchange Regulations Act 1942, on its plain terms, applies only to "persons" who are "entitled to sell or procure the sale of the said goods.
" The word "entitled" governs the word "sell" as well as the expression "procure the sale of".
Further, both these ex pressions are used with respect to the "said goods" which means the goods which have already been exported.
It is in these premises submitted that Section 12(2) applies only to such persons who are entitled to sell or procure the sale of goods which have already been exported.
We are not impressed by this submission that the afore said expression can be so narrowly construed so as to govern the scope of Section 12 (2) in such a truncated manner which renders it virtually 986 impotent in so far as transactions of "exports on sale" are concerned.
Too much is being read into too little for no more laudable a purpose than to paralyze the provision.
It appears to us that this expression does not necessarily induce one to the conclusion that the legislature wanted to prevent abuse in the context of exports for sale ' only.
The expression is meaningful, relevant, and can co exist in the context of abuse arising from 'exports on sale ' from com pleted transactions as well.
The expression "no person entitled to sell, or procure the sale of the said goods" is merely descriptive of the person who is accountable under the said provisions as has been held by the Madras High Court in R. Venkata Subbu 's case, I.L.R. Vol.
3 Madras , which has made a correct meaningful, and purposeful approach with which we unhesitatingly agree.
The whole purpose is to 'identify ' the accountable persons to prevent malpractises and ensure compliance.
It is conceivable that the exports might be made in the name of or through the agency of a person other than the 'owner of goods ' or the person entitled to sell the goods arising out of an 'export on sale.
In our view, Anantaraman, C J, who spoke for the Madras High Court in Venkatasubbu 's case (supra) was right in taking the view that the words "no person entitled to sell or procure the sale of the goods" are descriptive words which refer to the person in the capacity of the seller of the goods or the person entitled to procure the sale of the goods after the export of the goods has been made and that this expression does not necessarily imply that the export must be to a nominee of the consignor at the other end in pursuance to a contemplated transaction of sale.
We are therefore unable to accede to the submission urged on behalf of the Respondent Company (original Writ Petitioner) that Section 12 (2) can apply only to such persons who are enti tled to sell or procure the sale of goods which have already been exported for sale and not to the exports made in pursu ance to sales which have already been effected to a foreign buyer before the exports.
In our opinion, the said expres sion has been employed by the Legislature merely in order to identify the accountable persons and is merely descriptive in that sense.
The said expression does not restrict the operation of the Act to the persons who have not yet sold the goods.
One would have to take a quantum jump in order to conclude that persons referred to in Section 12 (2) are the persons who have not yet sold the goods but are entitled to sell the goods in future merely because the expression 'entitled to sell ' has been employed.
The persons who have exported the goods to a foreign buyer, in our view, are not sought to be excluded from the operation of section 12 (2).
This conclusion is reinforced if clauses (a) and (b) of Section 12(2) are taken into account.
Clause (a) in terms adverts to the sale of goods being delayed.
Clause (b) of Section 12(2) adverts to payment for the goods, otherwise than in the 987 prescribed manner, and also envisions a case where the payment does not represent the full amount payable by the foreign buyer in respect of the goods.
Clauses (a) and (b) are compatible both with transactions of export on sale as also to transactions of export for sale.
They are compatible with all transactions pertaining to both types of sales.
There is no warrant to assume that the Legislature has not made any provision in order to ensure that the full amount of the sale price is repatriated and foreign exchange earned therefrom is not lost to the Nation regardless of whether it is in respect of export on sale ' or 'export for sale '.
The avowed and the evident object of Section 12 is to ensure that that the Nation does not lose foreign exchange which is very much essential for the economic survival of the Nation.
The exporter cannot be allowed to syphon away a part of the foreign exchange or to deprive the Nation of the foreign exchange earned by the exports.
Such is the philosophy of Sec. 12.
To take the view that the legitimate National interest in the sphere of preservation of foreign exchange has relevance only in the context of transactions of exports for sales and that the Legislature exhibited total unconcern for the foreign exchange earned in the context of transac tions of completed sales or consignment sales, is to at tribute to the Legislature irrationality.
And to impute to the Legislature that it did not know its job inasmuch as it has tackled the problem only partially without any rational basis for excluding the transactions of completed sales from the purview of the legislation which would substantially erode or defeat the purpose of the legislation.
When it is equally possible to take the view which would be conducive to the conclusion that there is no lacuna in the legisla tion, it would be unreasonable to take the view that the Legislature has left a lacuna either by negligence or by lack of foresight or because it did not know its job.
In order to escape from the clutches of this answer less argu ment learned counsel for the Respondent Company contended that in so far as completed sales are concerned, they would be governed by Section 10 1and that the lacuna argument would 1.
Duty of persons entitled to receive foreign exchange etc. (1) No person who has a fight to receive any foreign exchange or to receive from a person resident outside India a payment in rupees shall, except with the general or spe cial permission of the Reserve Bank, do or refrain from doing anything or take or refrain from taking any action which has the effect of securing (a) that the receipt by him of the whole or part of that foreign exchange or payment is delayed, or, (b) that the foreign exchange or payment ceases in whole or in part to be receivable by him.
(2) Where a person has failed to comply with the require ments of sub section(1) in relation to any foreign exchange or payment in rupees, the Reserve Bank may give to him such directions as appear to be expedient for the purpose of securing the receipt of the foreign exchange or payment as the case may be." 988 accordingly lose significance.
It is our firm opinion that Sec. 10 has no application in respect of foreign exchange earnings related to export of goods.
Section 10 is designed primarily to impose an obligation on persons who have a right to receive any foreign exchange from a person resident outside India.
This section has nothing to do with the foreign exchange earned by export of goods.
The entire matter pertaining to payments for exported goods and the foreign exchange earnings arising therefrom in our consid ered opinion, has been dealt with in Section 12 which is a complete Code in itself.
It would be an irrational approach to make to hold that while Section 12 deals with payments for exported goods and foreign exchange earnings arising therefrom in all situations, it excludes from its purview one particular situation namely that arising in the context of failure to repatriate the sale proceeds of goods exported pursuant to a completed transaction of sale.
Evidently Section 12 has been very carefully designed.
Every possible situation has been conceived of and appropriate prophylactic measures to ensure the preservation of foreign exchange and prevention of syphoning off the foreign exchange, which is very much essential to the economic life of the Nation, have been embeded therein.
The entire subject of foreign exchange earnings relatable to export of goods has been specifically and specially dealt with in Section 12.
It would therefore be futile to search for an alibi in Section 10 merely in order to support the plea that Section 12 does not take within its fold the foreign exchange earnings relatable to transactions of completed sales.
Pray what is the reason or the purpose for doing so? Why take care to deal with 'all ' matters pertaining to export of goods and foreign exchange earnings therefrom in Section 12, but even so exclude for eign exchange earnings arising out of completed transaction of sale from its scope and ambit? When there is a specific provision which can reasonably be interpreted to cover this aspect of foreign exchange earnings also, be embodied in Section 12, which appears to us to be a complete Code in itself.
why leave this important vital matter of no less importance to be dealt with by section 10 which essentially deals with foreign exchange receivable from individuals and has nothing to do with export of goods? On a plain reading of Section 10, the matter pertaining to the foreign exchange earned by exports in the context of completed sales will not directly fail within the ambit of it.
It will have to be strained beyond the point of endurance in order to accommo date this aspect.
Section 10 is akin to a complementary provision which deals with preservation of foreign exchange which does not fall within a specific provision like Section 12.
What is more, if completed transactions are excluded from Section 12, the purpose of the legislation 989 will not be served, because sub section (6) of Section 121 which has been designed to ensure compliance with the provi sions made in Section 12 (1) to Section 12(5) cannot be availed of.
In that event, in regard to the persons who syphon off foreign exchange earned out of the transactions in the context of a completed sale or export on sale they cannot be dealt with under Section 12 (6) and no sanction to ensure compliance will be available.
The Act will be thus rendered toothless to ensure compliance with evasion in the context of a completed sale.
There is accordingly no compul sion of law, logic, or philosophy, to adopt such a view.
We accordingly allow this appeal and set aside the order of the High Court quashing the show cause notices impugned in the Writ Petition by the original Writ Petitioner.
The matter will now go back to the competent authority for proceeding in accordance with law.
The competent authority will extend the time for showing cause to the Respondent Company and after affording a reasonable opportunity of hearing, proceed to pass appropriate orders in accordance with law as may be called for by the relevant records and the material and such materials as may have been produced, before him in the light of the cause shown by the Respond ent Company on merits in response to the show cause notice.
It will be open to the competent authority to pass appropri ate order uninhibited by any observations which may have been made by the High Court touching the facts or merits of the case or in regard to the incidental matters.
We issue this direction having regard to the fact that it was in the first instance for the competent authority to form an opin ion on merits on the basis of the relevant material in so far as the factual aspect was concerned.
Since the High Court was quashing the notice on a jurisdictional issue there was no occasion for making any observation touching the facts of the case or the merits of the other contentions incidental thereto.
We also wish to make it clear that the question regarding the validity or otherwise of the views expressed by the High Court in regard to points other than the aforesaid point regarding the applicability of Section 12(2) have been kept open for decision in future as and when an occasion arises.
12(6) "For the purpose of ensuring compliance with the provisions of this section and any orders or directions made thereunder, the Reserve Bank may require any person making any export of goods to which a notification under sub sec tion (1) applies to exhibit contracts with his foreign buyer or other evidence to show that the full amount payable by the said buyer in respect of the goods has been, or will within the prescribed period be, paid in the prescribed manner.
" 990 We should not be understood as having pronounced on these matters one way or the other.
We, therefore, allow this appeal, set aside the order passed by the High Court and dismiss the Writ Petition instituted by the Respondents, with liberty to the parties to raise all contentions on facts and law barring the con tention that Section 12(2) of the Act is not attracted.
No order as to costs.
Appeal allowed.

summary:
Section 12(2) of the Foreign Exchange Regulation Act, 1947 which is designed to prevent wholesale or partial evasion of repatriation of earnings from export of goods is to the effect that 'where any expert of goods has been made to which a notification under sub section (1) applies, no person entitled to sell, or procure the sale of the said goods shall, except with the permission of the Reserve Bank . . ".
In R. Venkata Subbu & Ors.
vs The Direc torate of Enforcement, Enforcement Directorate, New Delhi & Anr., ILR Vol p. 18, the Madras High Court held that section 12(2) covers not only sale proceeds of goods exported "for sale" but also "on sale" in the context of sales completed before export, while the Calcutta High Court in the judgment under appeal held that it covers sale pro ceeds of goods exported "for sale" only.
In view of the conflict of the opinions, the present appeal is by certifi cate.
Allowing the appeal and remitting the matters to the Competent Authority, the Court, HELD: 1.1 The expression 'no person entitled to sell or procure the sale of the said goods ' cannot be so narrowly construed (as referable to goods which have already been exported), so as to govern the scope of section 12(2) in such a truncated manner which renders it virtually impotent in so far as transactions of 'exports on sale ' are con cerned.
Too much is being read into too little for no more laudable a purpose than to paralyze the provision.
The expression does not necessarily induce one to the conclusion that the legislature wanted to prevent abuse in the context of 'export for sale ' only.
The expression is mean 982 ingful, relevant, and can co exist in the context of abuse arising from 'exports on sale ' from completed transactions as well.
[985H;986B] 1.2 The said expression has been employed by the Legis lature merely in order to indentify the accountable persons and is merely descriptive in that sense.
The said expression does not restrict the operation of the Act to the persons who have not yet sold the goods.
One would have to take a quantum jump in order to conclude that persons referred to in section 12(2) are the persons who have not yet sold the goods but are entitled to sell the goods in future merely because the expression 'entitled to sell ' has been employed.
The persons who have exported the goods to a foreign buyer, are not sought to be excluded from the operation of section 12(2).
Clause (a) in terms adverts to the sale of goods being delayed.
Clause (b) of section 12(2) adverts to pay ment for the goods, otherwise than in the prescribed manner, and also envisions a case where the payment does not repre sent the full amount payable by the foreign buyer in respect of the goods.
Clauses (a) and (b) are compatible both with transactions of export on sale as also to transactions of export for sale.
They are compatible with all transactions pertaining to both types of sales.
There is no warrant to assume that the Legislature has not made any provision in order to ensure that the full amount of the sale price is repatriated and foreign exchange earned therefrom is not lost to the Nation regardless of whether it is in respect of 'export on sale ' or 'export for sale '.
[986F. 987A C] 1.3 The avowed and the evident object of section 12 is to ensure that the Nation does not lose foreign exchange which is very much essential for the economic survival of the Nation.
The exporter cannot be allowed to syphon away a part of the foreign exchange or to deprive the Nation of the foreign exchange earned by the exports.
Such is the philoso phy of section 12.
To take the view that the legitimate National interest in the sphere of preservation of foreign exchange has relevance only in the context of transactions of exports for sales and that the Legislature exhibited total unconcern for the foreign exchange earned in the context of transactions of completed sales or consignment sales, is to attribute to the Legislature irrationality.
And to impute to the Legislature that it did not know its job inasmuch as it has tackled the problem only partially with out any rational basis for excluding the transactions of completed sales from the purview of the legislation which would substantially erode or defeat the purpose of the legislation.
When it is equally possible to take the view which would be conducive to the conclusion that there is no lacuna in the legislation, it would be unreasonable to take the view that the Legislature has left a lacuna eitber by 983 negligence or by lack of foresight or because it did not know its job.
[987B F] 2.1 Section 10 has no application in respect of foreign exchange earnings related to export of goods.
Section 10 Is designed primarily to impose an obligation on persons who have a right to receive any foreign exchange from a person resident outside India.
This section has nothing to do with the foreign exchange earned by export of goods.
The entire matter pertaining to payments for exported goods and the foreign exchange earnings arising therefrom has been dealt with in section 12 which is a complete Code in itself.
Section 12 has been very carefully designed.
Every possible situation has been conceived of and appropriate prophylactic measures to ensure the preservation of foreign exchange and prevention of syphoning off the foreign exchange, which is very much essential to the economic life of the Nation have been embedded therein.
The entire subject of foreign ex change earnings relatable to export of goods has been spe cifically and specially dealt with in section 12.
It would therefore be futile to search for an alibi in section 10 merely in order to support the plea that section 12 does not take within its fold the foreign exchange earnings relatable to transactions of completed sales.
[988A E] 2.2 On a plain reading of section 10, the matter per taining to the foreign exchange earned by exports in the context of completed sales will not directly fall within the ambit of it.
It will have to be strained beyond the point of endurance in order to accommodate this aspect.
Section 10 is akin to a complementary provision which deals with preserva tion of foreign exchange which does not fall within a spe cific provision like section 12.
What is more, if completed transactions are excluded from section 12, the purpose of the legislation will not be served, because sub section (6) of section 12 which has been designed to ensure compliance with the provisions made in section 12(1) to section 12 (5) cannot be availed of.
In that event, in regard to the per sons who syphon off foreign exchange earned out of the transactions in the context of a completed sale or export on sale they cannot be dealt with under section 12(6) and no sanction to ensure compliance will be available.
The Act will be thus rendered toothless to ensure compliance with evasion in the context of a completed sale.
There is accord ingly no compulsions of law, logic, or philosophy to adopt such a view.
[988F; 9B?A B] R. Venkata Subba & Ors.
vs The Director of Enforcement, Enforcement Directorate, New Delhi & Anr., ILR Vol.
3 Mad. , approved.


judgement:
Criminal Appeal No. 222 Of 1986 From the Judgment and Order dated 11.3.
1986 of the Sessions Judge, Karnal in Misc.
Sessions Case (D) No. 1072 of 1985 Harbans Lal and G.K. Bansal for the Appellant.
V.C. Mahajan and C.V. Subba Rao for the Respondent.
The Judgment of the Court was delivered by NATARAJAN, J.
While allowing this appeal and setting aside the conviction of the appellant Balbir Singh under Section 4 of the Terrorist and Disruptive Activities (Pre vention) Act, 1985 (in short the 'Act ') by our order dated 30.10.86 we had stated that the reasons for our judgment will follow.
We now proceed to give the reasons for our judgment.
The appellant who holds the degrees of M.A. and B.T. was originally a Lieutenant in the Armed Forces.
On account of some mental ailment he was discharged from the Army.
There after he joined the Haryana Education Department and was appointed as a Lecturer in the Government Higher Secondary School at Siwah.
After about 7 years of service in that School he was transferred to the Government 1098 Senior Secondary School at Sanauli Khurd.
He, however, continued to reside at Siwah since he could not get accommo dation at Sanauli Khurd.
The circumstances under which the appellant has come to be convicted under Section 4 of the Act are to be found in the evidence of two prosecution witnesses viz. P.W.I Jagdish Chander, a Police Constable and P.W.2, Gian Chand, a Head Constable.
One other witness Ramji Lal (P.W.3), an Assistant Sub Inspector of Police is also a prosecution witness but since he speaks only about the filing of the charge sheet his evidence is not very material.
The evidence of P.Ws. 1 and 2 is to the following ef fect.
Pursuant to a call given by the Bhartiya Kisan Union for a Rail Roko Abhiyan on 2.9.85 a crowd of about 1500 persons had gathered on the forenoon of that day at a place near the railway line in the village Siwah, Tehsil Panipat, district Karnal.
To safeguard the railway line and to main tain the law and order, the authorities had posted a large contingent of police at the place of gathering of the demon strators.
In spite of the presence of the police force the demonstrators became violent and attempted to cause damage to the railway line and also indulged in throwing brickbats at the police force.
To control the situation the police party had to resort to lathi charge on four or five occa sions and also to firing tear gas shells.
At one point of time, as the violence did not abate the police had to resort to shooting also.
One of the demonstrators died on account of gun shot injuries and some others sustained injuries due to the lathi charge.
The appellant, it is stated, came at about 8 or 8.30 P.M. to the place where the lathi charge and shooting had taken place and addressed the demonstrators and incited them to violence.
In his inflammatory speech the appellant is said to have condemned the actions of the Central Government and the State Government in trying to appease the rebel elements and extremists of Punjab by sacrificing the inter ests and welfare of the people of Haryana and further stated that if the people of Haryana want to protect their rights they should also resort to the ways and methods adopted by the Punjab extremists and that for his part he was prepared to lead their struggle since he had an eight chamber revolv er and that he had on earlier occasion attempted to kill Ch.
Bhajan Lal, Chief Minister of Haryana and hence the demon strators may lend him their cooperation so that the Govern ment can be forced to safeguard the interests of the people of Haryana.
1099 P.Ws. 1 and 2, who were on intelligence duty, carefully listened to the speech and on the next morning P.W. 1 pre sented a report (Exhibit P.A.) at the Police Station at Nissing.
Thereupon a case was registered against the appel lant under Section 4 of the Act and after completion of investigation he was charge sheeted in the Court of Shri S.K. Jain, Judge, Karnal, the Designated Court under the Act.
As already stated the prosecution rested its case on the testimony of P.Ws. 1 and 2, they being the material witness es.
The appellant denied the prosecution case and stated in defence that on compassionate grounds he went to the place of congregation of the demonstrators to make enquiries when he came to know in the evening, on his return from School, that the police had resorted to lathi charge and firing to disperse the demonstrators and that one person had died on account of the firing.
In support of his defence the appel lant examined two witnesses besides himself and further sought to contend that about 60 persons who had been arrest ed were let off without being prosecuted while he alone has been unjustly charge sheeted on false avernments.
The learned Judge of the Designated Court has accepted the prosecution evidence and found the appellant guilty and convicted him under Section 4 of the Act.
After hearing the appellant on the question of sentence the Court has awarded him the minimum sentence of three years ' R.I. Arguing the case of the appellant before us Mr. Gopal Kishan Bansal, learned counsel levelled many criticisms against the prosecution case and submitted that the learned Judge of the Designated Court ought not to have acted on the testimony of P.Ws. 1 and 2 and convicted the appellant.
The learned counsel took us through the evidence of P.Ws. 1 and 2 and also the relevant portions of the judgment under appeal and adverted to several infirmities in the evidence of the witnesses and also drew our attention to the lack of credible evidence in the case.
Section 16 of the Act provides for an appeal against a judgment rendered by a Designated Court to the Supreme Court alone and to no other court.
Consequently, this appeal constitutes the first appeal as well as the final appeal against the judgment of the Designated Court.
Such being the case, we have to necessarily scrutinise the evidence in its entirety and re appraise the testimony of witnesses to determine its evidentiary value.
On making such scrutiny and re appraisal of the evidence we find the contentions of the appellant 's counsel to have 1100 merit and substance in them.
We find the prosecution evi dence to be not only lacking in credibility but also to suffer from numerous infirmities.
At the outset we would like to point out that even according to the prosecution a crowd of about 1000 to 1500 persons had gathered near the railway line in the village of Siwah on the morning of 2.9.85 in response to the call given by the Bhartiya Kisan Union for a Rail Roko Abhiyan.
It is the further case of the prosecution that the demonstrators became violent and attempted to cause damage to the raiway line and in order to safeguard the railway property and maintain law and order the police force, assembled in ade quate numbers, had resorted to lathi charge four or five times during the day and in addition the police had also to fire tear gas shells and even to resort to shooting.
One man had died on account of the shooting and several persons had sustained injuries on account of the lathi charge.
Neverth less the crowd had not dispersed but continued to remain at the scene to carry on their agitation.
In such circumstances it is natural to expect the police force to have remained, in strength at the scene to maintain effective control over the demonstrators and to safeguard the railway line.
Curi ously enough, the entire force comprised of a Deputy Super intendent of Police, Inspectors, Sub Inspectors, Assistant Sub Inspectors, Head Constables and Constables is said to have left the place en masse except P.Ws. 1 and 2.
It is significant to note P.Ws. 1 and 2 were not on security duty at that place but were only there to submit intelligence reports.
When a lathi charge had been made even at 4.30 P.M. it is inconceivable that the entire police force would have left the place in the evening and gone away elsewhere.
We are, therefore, led to think that this unnatural version is put forward to cover up the lacuna for not examining any police officer of a higher rank than P.Ws. 1 and 2 regarding the inflammatory speech alleged to have been made by the appellant at about 8.30 P.M. on that day.
Even assuming for argument 's sake that the entire police force had left the scene and only P.Ws. 1 and 2 were left at the place, the prosecution could have certainly examined some independent witnesses to prove what the appellant had spoken on that night.
Surely, it cannot be said that among the 1500 or 2000 persons present there, no one would have come forward to give evidence about what the appellant spoke on that night.
No explanation has been offered as to why no independent witness has been examined.
In fact P.Ws 1 and 2 have not even stated that they tried to find out the names of any of the people assembled there or made any effort to note down their names 1101 so that they can later be summoned to appear as witnesses if a case was to be filed against the appellant.
Admittedly, the appellant was a stranger to P.Ws. 1 and 2 and hence they could not have known who he was and what was his occupation.
P.Ws. 1 and 2 had not made any enquiries to find out who the appellant was and where he was residing.
The strange version given by P.W. 1 is that before the appellant began his speech he introduced himself to the demonstrators by giving out his name, address and occupa tion.
The statement, apart from its artificiality is not corroborated even by P.W. 2.
Another discrepancy noticed is that while P.W. 1 has stated that the appellant addressed the gathering from the Chaubara with a microphone in his hand, P.W. 2 has stated that the appellant stood in the midst of the demonstrators and addressed them and moreover P.W.2 makes no reference to the appellant having any micro phone.
While P.W. 2 has stated that he did not apprehend any violent reaction from the public on account of the speech made by the appellant, P.W.i would say that from the moment the appellant started introducing himself to the demonstra tors he anticipated things and began to take notes of the appellant 's speech.
A noticeable feature in the case ifs that the report Exhibit P.A. is said to have been prepared on the basis of the "rough notes" prepared by P.W. 1 but the "rough notes" is not forthcoming and has not been marked in evidence and it is said to have been destroyed.
Since the "rough notes" constitute the first recorded entry of the speech it is an important document and in the absence of it the fair report cannot be given unreserved acceptance.
Even in the matter of the preparation of the report, one would expect P.W. 2 holding a higher rank than P.W. 1 to have prepared it.
Not only has P.W. 2 not prepared any report but his own admis sion is that he did not sign or even initial the "rough notes" or the fair report Exhibit P.A. Apart from the failings in the evidence of P.Ws. 1 and 2 we also find that virtually no investigation has been done before the appellant was charge sheeted.
The Investigating Officer has not taken any steps to find out the antecedants of the appellant and whether he was a member of any politi cal party.
No investigation has been made to find out wheth er the appellant had an eight chamber revolver as he is alleged to have claimed and whether he had made any attempt on the life of Ch.
Bhajan Lal on an earlier occasion.
With out making any effective investigation the police authori ties have lightly launched a prosecution against the appel lant solely on the basis of the report given by P.W.I. 1102 Having regard to the numerous infirmities which are apparent in the prosecution case, we are clearly of the opinion that the learned Judge of the designated court was not justified in holding the prosecution case proved beyond reasonable doubt and finding the appellant guilty under Section 4 of the Act and convicting him accordingly.
We are constrained to observe that it is highly regret table that the authorities concerned should have launched a prosecution under the Act in a manner which can be easily termed as cavalier.
The Act though intended to effectively deal with terrorists and disruptionists contains drastic provisions for punishing terrorists and disruptionists under Sections 3 and 4 of the Act.
Anyone convicted under Section 3(2)(i) of the Act is liable to be punished with death and whoever is convicted under Section 3(2)(ii) of the Act is liable to be punished with imprisonment for a term which shall not be less than 5 years but which may extend to term of life and shall also be liable to fine.
Whoever is con victed under Section 4 of the Act is liable to be punished with imprisonment for a term which shall not be less than 3 years but which may extend to term of life and shall also be liable to fine.
Furthermore, against any judgment, sentence or order rendered under the Act, an appeal would lie direct ly to the Supreme Court and not to the High Court.
Having regard to all these features the investigation of cases under the Act has not only to be thorough but also of a high order.
In this case we find the investigation to be nowhere near the required standards and likewise the evidence ad duced in the case to be far from satisfactory to justify the conviction of the appellant under Section 4 of the Act.
The appeal has, therefore, to be necessarily allowed and the conviction and sentence awarded to the appellant set aside.
M.L.A. Appeal al lowed.

summary:
A crowd of about 1500 persons had gathered near the railway line in the village Siwah, District Karnal on the morning of 2.9.85 in response to a call given by the Bhar tiya Kisan Union for a Rail Roko Abhiyan.
To safeguard the railway line and to maintain law and order the authorities posted a large contingent of police.
Since the demonstrators became violent and attempted to cause damage to the railway line, the police force resorted to lathi charge four or five times during the day and in addition fired tear gas and even resorted to shooting.
The appellant, it is alleged, came at about 8 or 8.30 p.m. to the place where lathi charge and shooting had taken place, addressed the demonstrators and incited them to violence.
According to the prosecution, P.Ws.
I and 2, who were on intelligence duty, carefully listened to the speech and on the next morning P.W.I presented a report at he Police Station.
Thereupon a case was registered against the appellant under s.4 of the Terrorists and Disruptive Activi ties (Prevention) Act, 1985 and after investigation he was charge sheeted.
The Designated Court under the Act accepted the prosecution evidence and found the appellant guilty and convicted him under s.4 of the Act.
Allowing the appeal by the appellant, this Court, HELD: 1.
The Judge of the designated court was not justified in holding the prosecution case proved beyond reasonable doubt and finding the appellant guilty under s.4 of the Act and convicting him accordingly.
The prosecution evidence is not only lacking in credibility but also suffers from numerous infirmities.
It is far from satisfactory to justify the conviction of the appellant under s.4.
The conviction and sentence awarded to the appellant are there fore set aside.
1096 2.
Section 16 of the Act provides for an appeal against a judgment rendered by a designated court to the Supreme Court alone and to no other court.
Consequently, this appeal constitutes the first appeal as well as the final appeal.
Such being the case, the Supreme Court has to necessarily scrutinise the evidence in its entirety and re appraise the testimony of witnesses to determine its evidentiary value.
[1099G H] 3.1.
I and 2 were not on security duty at that place but were only there to submit intelligence reports.
When a lathi charge had been made even at 4.30 p.m. it is inconceivable that the entire police force would have left the place in the evening and gone away elsewhere.
Therefore, this unnatural version is put forward to cover up the lacuna for not examining any police officer of a higher rank re garding the inflammatory speech alleged to have been made by the appellant at about 8.30 p.m. on that day.
[1100E F] 3.2 The prosecution could have certainly examined some independent witnesses to prove what the appellant had spoken on that night.
Surely, it cannot be said that among the 1500 or 2000 persons present there, no one would have come for ward to give evidence about what the appellant spoke on that night.
No explanation has been offered as to why no inde pendent witness has been examined.
In fact P.Ws.
I and 2 have not even stated that they tried to find out the names of any of the people assembled there or made any effort to note down their names so that they can later be summoned to appear as witnesses if a case was to be filed against the appellant.
[1100G H; 1101A] 3.3 The appellant was a stranger to P.Ws.1 and 2 and hence they could not have known who he was and what was his occupation.
I and 2 had not made any enquiries to find out who the appellant was and where he was residing.
The strange version given by P.W.I is that before the appellant began his speech he introduced himself to the demonstrators by giving out his name, address and occupation.
The state ment, apart from its artificiality is not corroborated even by P.W .2.
Another discrepancy noticed is that while P.W. I has stated that the appellant addressed the gathering from the Chaubra with a microphone in his hand, P.W.2 has stated that the appellant stood in the midst of the demonstrators and addressed them.
Moreover P.W.2 makes no reference to the appellant having any microphone.
[1101A C] 3.4 The report Exhibit P.A. is said to have been pre pared on the basis of rough notes prepared by P.W.I, but the 'rough notes ' is not forthcoming and has not been marked in evidence and is said to have 1097 been destroyed.
Since the rough notes constitute the first recorded entry of the speech it is an important document and in its absence the fair report cannot be given unreserved acceptance.
Even in the matter of the preparation of the report, one would except P.W.2 holding a higher rank than P.W.I to have prepared it.
Not only has P.W.2 not prepared any report but his own admission is that he did not sign or even initial the rough notes or the fair report Exhibit P.A. [1101D F] [The Court observed that it is highly regrettable that the authorities concerned should have launched a prosecution under the Act in a manner which can be easily termed as cavalier.
The Act though intended to effectively deal with the terrorists and disruptionists contains drastic provi sions for punishing them.
Furthermore, against any judgment, sentence or order rendered under the Act, an appeal would lie, directly to the Supreme Court and not to the High Court.
Therefore, the investigation of the case under the Act has not only to be thorough but also of a high order.]