judgement:
Civil Appeal Nos.
3050 305 1 of 199 1.
From the Judgment and Orders dated 23.8.90 & 13.6.1990 of the Madras High Court in Civil Revision Petition Nos.
1236/85 and 2758 of 1988.
T.S.K. lyer, Rajiv Datta and Shahid Azad for the Appellant.
M.S. Nargolkar, D.M. Nargolkar and A.T.M. Sampath for the Respondents.
The Judgment of the Court was delivered by OJHA, J.
Special leave granted.
Since in both these appeals an identical question of law arises they are being decided by a common judgment.
Facts in a nutshell necessary for appreciating the question involved may be stated.
M/s Patel Roadways (P) Limited, the appellant in both these appeals carries on the business of a carrier and transports goods on hire.
It has its principal office at Bombay and branch offices at various other places which shall hereinafter be referred to as subordinate of fices.
M/s Prasad Trading Company, the respondent in the Civil Appeal arising out of SLP (C) No. 14660 of 1990 who is a dealer in 395 cardamom entrusted a consignment of 851) kilograms of carda mora to the appellant at its subordinate office at Bodinaya kanur in Tamil Nadu to be delivered at Delhi.
After the goods had been transported by the appellant and kept in a godown at Delhi the same got destroyed and damaged in a fire as a result whereof the consignee refused to take delivery.
The respondent instituted a suit in the Court of Subordinate Judge, Periakulam within whose territorial jurisdiction the subordinate office of the appellant where the goods were entrusted for transport is situate for damages alleging that the fire was due to the negligence and carelessness on the part of the staff of the appellant.
M/s Tropical Agro Systems Private Limited, the respond ent 1 in the Civil Appeal arising out of SLP (C) No. 14692 of 1990 on the other hand entrusted certain packets of pesticides insured with the second respondent, M/s Oriental Insurance Company Limited to the appellant at its subordi nate office at Madras for being carried to New Delhi.
Ac cording to the respondents the goods aforesaid were deliv ered at New Delhi in a damaged condition resulting in loss to the first respondent and a suit was instituted for recov ery of the loss so sustained by the respondents in the Court of the Third Assistant Judge, City Civil Court, Madras.
In both the suits the appellant inter alia took the plea in its defence.
that in the contract entered into between them the parties had agreed that jurisdiction to decide any dispute between them would be only with the courts at Bombay and consequently the courts in Madras where the two suits re ferred to above had been instituted had no jurisdiction.
This plea was repelled in both the suits by the trial court.
The order of the trial court in each of the two suits was challenged by the appellant before the High Court of Judica ture at Madras under Section 115 of the Code of Civil Proce dure (hereinafter referred to as the Code).
This challenge having failed in each of the civil revisions, the appellant has preferred these civil appeals.
The question which arises in both these civil appeals, therefore, is as to whether in view of the relevant clause in the contract between the parties the courts at Bombay alone had jurisdiction and the jurisdiction of the courts at Madras where the two suits were instituted was barred.
It has been urged by the learned counsel for the appel lant that apart from the courts within whose territorial jurisdiction the goods were delivered to the appellant for transport, the courts at Bombay also had jurisdiction to entertain a suit arising out of the contract between the parties in view of the Explanation to Section 20 of the Code inasmuch as the principal office of the appellant was situ ate in 396 Bombay.
According to learned counsel for the appellant since courts at two places namely Madras and Bombay had jurisdic tion in the matter, the jurisdiction of the courts in Madras was ousted by the clause in the contract whereunder the parties had agreed that jurisdiction to decide any dispute under the contract would be only in the courts at Bombay.
Consequently the courts where the two suits were instituted had no jurisdiction to entertain them and the trial court in each of the two cases as well as the High Court erred in law in taking a contrary view.
Having heard learned counsel for the parties we find it difficult to agree with this submission.
For the sake of convenience Section 20 of the Code except the illustrations is reproduced hereunder: "20.
Other suits to be instituted where de fendants reside or cause of action arises: Subject to the limitations aforesaid, every suit shall be instituted in a Court within the local limits of whose jurisdiction : (a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain; or (b) any of the defendants, where there are more than one, at the time of the commencement of the suit, actually and voluntarily resides, or carries on business, or personally works for gain, provided that in such case either the leave of the Court is given, or the de fendants who do not reside, or carry on busi ness, or personally work for gain, as afore said, acquiesce in such institution; or (c) the cause of action, wholly or in part, arises.
Explanation: A corporation shall be deemed to carry on business at its sole or principal office in India or, in respect of any cause of action arising at any place where it has also a subordinate office, at such place." In Hakam Singh vs M/s. Gammon (India) Ltd., [1971] 3 SCR Page 314 it was held that "corporation" referred to in Section 20 397 meant not only a statutory corporation but also a company registered under the Indian Companies Act.
It was also held that it is not open to the parties by agreement to confer jurisdiction on any court which it did not otherwise possess under the Code.
But where two courts have jurisdiction under the Code to try a suit or proceeding an agreement between the parties that the dispute between them shall be tried in one of such courts is not contrary to public policy nor does such an agreement contravene Section 28 of the Contract Act.
In that case also there was a clause in the agreement being clause No. 13 which provided that notwithstanding the place where the work under the contract was to be executed the contract shall be deemed to have been entered into between the parties at Bombay and the court in Bombay alone shall have jurisdiction to adjudicate thereon.
The trial court had held that the entire cause of action had arisen at Varanasi and the parties could not by agreement confer jurisdiction on the courts at Bombay which they did not otherwise pos sess.
In a civil revision filed by the respondent the Alla habad High Court held that the courts at Bombay had also jurisdiction and in view of clause 13 of the agreement the jurisdiction of the courts at Varanasi stood ousted.
It is in the appeal against the said judgment of the High Court that the propositions of law referred to above were laid down by this Court.
It was held that since the respondent had its head office at Bombay the courts at Bombay also had 'jurisdiction by virtue of Section 20 of the Code read with its Explanation and in view of clause 13 of the agreement between the parties the courts in Bombay alone had jurisdic tion in the matter.
The appeal was accordingly dismissed.
This view was reiterated by this Court in Globe Transport Corporation vs Triveni Engineering Works and Another, [1983] 4 SCC Page 707.
Reliance has been placed by learned counsel for the appellant on these two decisions and if it can be held that the courts at Bombay also had jurisdiction in the two suits referred to above the judgments appealed against will have to be set aside on the basis of these decisions.
The ques tion, however, is as to whether in any of these two suits the courts at Bombay also had jurisdiction apart from the courts within whose jurisdiction the goods were entrusted to the appellant for purposes of transport.
Having given our anxious consideration to the matter we are of the opinion that the courts at Bombay in these two cases did not at all have jurisdiction and consequently the agreement between the parties conferring exclusive jurisdiction on courts at Bombay is of no avail.
Clauses(a) and (b) of Section 20 inter alia refer to a court within 398 the local limits of whose jurisdiction the defendant inter alia "carries on business".
Clause (c) on the other hand refers to a court within the local limits of whose jurisdic tion the cause of action wholly or in part arises.
It has not been urged before us on behalf of the appellant that the cause of action wholly or in part arose in Bombay.
Conse quently clause (c) is not attracted to the facts of these cases.
What has been urged with the aid of the Explanation to Section 20 of the Code is that since the appellant has its principal office in Bombay it shall be deemed to carry on business at Bombay and consequently the courts at Bombay will also have jurisdiction.
On a plain reading of the Explanation to Section 20 of the Code we find an apparent fallacy in the aforesaid argument.
The Explanation is in two parts, one before the word "or" occurring between the words "office in India" and the words "in respect of" and the other thereafter.
The Explanation applies to a defendant which is a corporation which term, as seen above, would include even a company such as the appellant in the instant case.
The first part of the Explanation applies only to such a corporation which has its sole or principal office at a particular place.
In that event the courts within whose jurisdiction the sole or principal office of the defendant is situate will also have jurisdiction inasmuch as even if the defendant may not be actually carrying on business at that place, it will "be deemed to carry on business" at that place because of the fiction created by the Explanation.
The latter part of the Explanation takes care of a case where the defendant does not have a sole office but has a princi pal office at one place and has also a subordinate office at another place.
The words "at such place" occurring at the end of the Explanation and the word "or" referred to above which is disjunctive clearly suggest that if the ease falls within the latter part of the Explanation it is not the Court within whose jurisdiction the principal office of the defendant is situate but the court within whose jurisdiction it has a subordinate office which alone shall have jurisdic tion "in respect of any cause of action arising at any place where it has also a subordinate office".
Here we may point out that the view which we take finds support from a circumstance which, in our opinion, is rele vant.
Section 20 of the Code before its amendment by the Code of Civil Procedure (Amendment) Act, 2976 had two Expla nations being Explanations I and II.
By the Amendment Act Explanation I was omitted and Explanation II was renumbered as the present Explanation.
Explanation I so omitted read as hereunder: "Explanation I: Where a person has a permanent dwelling 399 at one place and also temporary residence at another place, he shall be deemed to reside at both places in respect of any cause of action arising at the place where he has such tempo rary residence." This Explanation dealt with the case of place of resi dence of the defendant and provided with regard to a person having a permanent dwelling at one place and also temporary at another place that such person shall be deemed to reside at both places in respect of any cause of action arising at the place where he has such temporary residence.
The lan guage used in Explanation II on the other hand which is the present Explanation was entirely different.
Had the inten tion been that if a corporation had its principal office at one place and a subordinate office at another place and the cause of action arose at the place where it had its subordi nate office it shall be deemed to be carrying on business at both places the language used in Explanation II would have been identical to that of Explanation I which was dealing with a case of a person having a permanent dwelling at one place and also temporary residence at another place.
The marked difference in the language of the two Explanations clearly supports the view which we have taken with regard to the interpretation of the present Explanation to Section 20 of the Code which was Explanation II earlier as indicated above.
We would also like to add that the interpretation sought to be placed by the appellant on the provision in question renders the explanation totally redundant.
If the intention of the legislature was, as is said on their behalf, that a suit against a corporation could be instituted either at the place of its sole or principal office (whether or not the corporation carries on business at that place) or at any other place where the cause of action arises, the provisions of clauses (a), (b) and (c) together with the first .part of the explanation would have completely achieved the purpose.
Indeed the effect would have been wider.
The suit could have been instituted at the place of the principal office because of the situation of such office (whether or not any actual business was carried on there).
Alternatively, a suit could have been instituted at the place where the cause of action arose under clause (c) (irrespective of whether the corpora tion had a subordinate office in such place or not).
This was, Therefore, not the purpose of the explanation.
The explanation is really an explanation to clause (a).
It is in the nature of a clarification on the scope of clause (a) viz. as to where the corporation can be said to carry on business.
T 'his, it is clarified, will be the place where the principal office is ituated (whether or not any business actually is carried on there) or the place where a business 400 is carried on giving rise to a cause of action (even though the principal office of the corporation is not located there) so long as there is a subordinate office of the corporation situated at such place.
The linking together of the place where the cause of action arises with the place where a subordinate office is located clearly shows that the intention of the legislature was that, in the case of a corporation, for the purposes of clause (a), the location of the subordinate office, within the local limits of which a cause of action arises, is to be the relevant place for the filing of a suit and not the principal place of business.
If the intention was that the location of the sole or principal office as well as the location of the subordinate office (within the limits of which a cause of action arises) are to be deemed to be places where the corporation is deemed to be carrying on business, the disjunctive "or" will not be there.
Instead, the second part of the explanation would have read "and in respect of any cause of action arising at any place where it has a subordinate office, also at such place".
As far as we can see the interpretation which we have placed on this section does not create any practical or undue difficulties or disadvantage either to the plaintiff or a defendant corporation.
It is true that, normally, under clauses (a) to (c), the plaintiff has a choice of forum and cannot be compelled to go to the place of residence or business of the corporation and can file a suit at a place where the cause of action arises.
If a corporation desires to be protected from being dragged into litigation at some place merely because a casue of action arises there it can save itself from such a situation by an exclusion clause as has been done in the present case.
The clear intendment of the Explanation, however, is that, where the corporation has a subordinate office in the place where the cause of action arises, it cannot be heard to say that it cannot be sued there because it does not carry on business at that place.
It would be a great hardship if, in spite of the corporation having a subordinate office at the place where the cause of action arises (with which in all probability the plaintiff has had dealings), such plaintiff is to be compelled to travel to the place where the corporation has its principal place.
That place should be convenient to the plaintiff; and since the corporation has an office at such place, it will also be under no disadvantage.
Thus the Explanation provides an alternative locus for the corporation 's place of busi ness, not an additional one.
There may be only one extra ordinary situation in which this interpretation may cause an apparent anomaly.
This is where the plaintiff has also his/its place of business at the same place as the 401 corporation but the cause of action has arisen at some other place.
The above interpretation would preclude him from filing a suit in that place of business common to both parties and compel him to go to a court having jurisdiction over the place where the cause of action has arisen.
But this is not really a hardship because such plaintiff must have had some nexus or connection with the place since some part of the cause of action had arisen there; if he can have dealings with the corporation at such a place giving rise to the cause of action, there is no reason why he should find it disadvantageous or difficult to file a suit at such place.
Equally, the corporation, having a subordinate office at the place, will suffer no disadvantage.
In this view of the matter since in the instant two cases clause (c) is not attracted to confer jurisdiction on courts at Bombay and the appellant has admittedly its subor dinate offices at the respective places where the goods in these two cases were delivered to it for purpose of trans port the courts at Bombay had no jurisdiction at all to entertain the suits filed by the respondents and the parties could not confer jurisdiction on the courts at Bombay by an agreement.
Accordingly no exception can be taken to the findings in this behalf recorded by the trial court and the High Court in these two cases.
In the result, we find no merit in any of these two appeals and they are accordingly dismissed but in the cir cumstances of the case the parties shall bear their own costs.

summary:
The appellant in both the appeals carried on the busi ness of a carrier and transported goods on hire.
It had its principal office at Bombay and branch offices at various other places.
The respondent in the first appeal a dealer in cardamom entrusted a consignment of cardamom to the appellant at its branch office at Bodinayakanur in Tamilnadu to be delivered at Delhi.
After the goods had been transported by the appel lant and kept in a godown at Delhi the same got destroyed and damaged in a fire as a result whereof the consignee refused to take delivery.
The respondent instituted a suit in the sub court within whose territorial jurisdiction the branch office of the appellant was situated for damages alleging that the fire was due to the negligence and care lessness on the part of the staff of the appellant.
Respondent No. 4 in the second appeal entrusted certain packets of pesticides insured with the second respondent Insurance Company to the appellant at its branch office at Madras for being carried to Delhi.
The respondent alleged that the goods were delivered at New Delhi in a damaged condition resulting in loss and a suit was instituted for recovery of the loss in the City Civil Court at Madras.
In both the aforesaid civil suits the appellant pleaded in defence that in the contract entered into between them, the parties had agreed that jurisdiction to decide any dispute between them would be only with the courts at Bom bay, and consequently the courts in Madras ' where the two suits had been instituted had no jurisdiction.
This plea was repelled by the Trial Court in each of the suits.
The aforesaid orders were challenged by the appellant in the High 392 Court under Section 115 C.P.C. and having failed, the appel lant appealed to this Court.
In the appeal, it was contended on behalf of the appel lant that since the courts at two places namely Madras and Bombay had jurisdiction in the matter, the jurisdiction of the courts in Madras was ousted by the clause in the con tract whereunder the parties had agreed that jurisdiction to decide any dispute under the contract would be only in the courts at Bombay.
On the question: whether in view of the relevant clause in the contract between the parties the courts at Bombay alone had jurisdiction and the jurisdiction of the courts at Madras where the two suits were instituted was barred.
Dismissing the appeals, this Court, HELD: 1.
The courts at Bombay in these two cases did not at all have jurisdiction and consequently the agreement between the parties conferring exclusive jurisdiction on courts at Bombay is of no avail.
[401D] 2.
Clauses (a) and (b) of Section 20 refer to a court within the local limits of whose jurisdiction the defendant "carries on business".
Clause (c) on the other hand refers to a court within the local limits of whose jurisdiction the cause of action wholly or in part arises.
[397H 398A] 3.
Section 20 of the Code before its amendment by the Code of Civil Procedure (Amendment) Act, 1976 had two Expla nations being Explanation I and II.
By the Amendment Act Explanation I was omitted and Explanation II was renumbered as the present Explanation.
[398G] 4.
The Explanation is in two parts, one before the word "or" occurring between the wOrds "office in India" and the words "in respect of" and the other thereafter.
The Explana tion applies to a defendant which is a corporation which term, would include even a company such as the appellant in the instant case.
The first part of the Explanation applies only to such a corporation which has its sole or principal office at a particular place.
In that event the courts within whose jurisdiction the sole or principal office of the defendant is situate will also have jurisdiction inas much as even if the defendant may not be actually carrying on business at that place, it will "be deemed to carry on business" at that place because of the fiction created by the Explanation.
[398C F] 393 5.
The latter part of the Explanation takes care of a case where the defendant does not have a sole office but has a principal office at one place and has also a subordinate office at another place.
The words "at such place" occurring at the end of the Explanation and the word "or" referred to above which is disjunctive clearly suggest that if the case fails within the latter part of the Explanation it is not the court within whose jurisdiction the principal office of the defendant is situate but the court within whose juris diction it has a subordinate office which alone shall have jurisdiction "in respect of any cause of action arising at any place where it has also a subordinate office".
[398E F] 6.
The Explanation is really an explanation to clause (a).
It is in the nature of a clarification on the scope of clause (a) viz. as to where the corporation can be said to carry on business.
This, it is clarified, will be the place where the principal office is situated (whether or not any business actually is carried on there) or the place where a business is carried on giving rise to a cause of action (even though the principal office of the corporation is not located there) so long as there is a subordinate office of the corporation situated at such place.
The linking together of the place where the cause of action arises with the place where a subordinate office is located clearly shows that the intention of the legislature was that, in the case of a corporation, for the purposes of clause (a), the location of the subordinate office, within the local limits of which a cause of action arises, is to be the relevant place for the filing of a suit and not the principal place of business.
[399G 400B] 7.
If the intention was that the location of the sole or principal office as well as the location of the subordinate office (within the limits of which a cause of action arises) are to be deemed to be places where the corporation is deemed to be carrying or business, the disjunctive "or" will not he there.
Instead, the second part of the explanation would have read "and, in respect of any cause of action arising at any place where it has a subordinate office, also at such place ' '.
[400C] 8.
The clear intendment of the Explanation, however, is that, where the corporation has a subordinate office in the place where the cause of action arises, it cannot be heard to say that it cannot be sued there because it does not carry on business at that place.
It would be a great hard ship if, in spite of the corporation having a subordinate office at the place where the cause of action arises (with which in all probability the plaintiff has had dealings), such plaintiff is to be compelled to travel to the place where the corporation has its principal place.
That place should be convenient to the plaintiff; and since the corpo ration 394 has an office at such place, it will also be under no disad vantage.
Thus the Explanation provides an alternative locus for the corporation 's place of business, not an additional one.
[400F G] 9.
In the instant two cases since clause (c) is not attract ed to confer jurisdiction on courts at Bombay and the appel lant has admittedly its subordinate offices at the respec tive places where the goods in these two cases were deliv ered to it for purposes of transport, the courts at Bombay had no jurisdiction at all to entertain the suits filed by the respondents and the parties could not confer jurisdic tion on the courts at Bombay by an agreement.
Accordingly, no exception can be taken to the findings in this behalf recorded by the trial court and the High Court.
[401C D] Hakam Singh vs M/s. Gammon (India) Ltd., [1971] 3 SCR page 314, referred to.


judgement:
ivil Appeal Nos.
1103 & 1104 of 1979.
From the Judgment and Order dated 20.3.
1978 of the Allahabad High Court in I .T.R. Nos.
428/72 and 542 of 1973.
Ashok Grover for the Appellant.
J. Ram Murthy, section Rajappa and Ms. A. Subhashini for the Respondent.
The Judgment of the Court was delivered by V. RAMASWAMI, J.
The appellant is a private limited company in Liquidation.
The winding up order was made by the High Court on 8th November, 1949 land the Liquidator was directed to submit reports every three months respecting the progress of the winding up proceedings and realisation of the assets.
In the course of winding up the Liquidator sold certain assets and deposited the money in fixed deposits with certain banks.
During the previous year relevant to the assessment year 1966 67 the appellant earned by way of interest from fixed deposits a sum of Rs.32,237.60.
The Liquidator had in the relevant previous year incurred the following expenditure totalling Rs. 12,379.45: Salaries Rs. 1,2 15.00 Legal fees Rs. 9,725.00 Liquidation expenses Rs. 538.85 T.A. & D.A. Rs. 751.51 Postage Rs. 95.34 Stationery Rs. 53.75 Total: Rs. 12,379.45 386 The assessee company claimed a deduction of the above said sum of Rs. 12,379.45 from the interest income of Rs.32,237.60.
The Income Tax Officer did not allow any part of the expenditure claimed by the assessee company and assessed the entire amount of Rs.32,237.60 as taxable under section 56 of the Income Tax Act, 1961 (hereinafter referred to as the 'Act '), under the head 'INCOME FROM OTHER SOURCES".
This assessment order was confirmed by the Appel late Assistant Commissioner and the Tribunal on an appeal.
In the assessment year 1967 68 also the assessee earned certain amounts of money by way of interest from fixed deposits and the Liquidator incurred identical expenditures as in the assessment year 1966 67 except for the difference in the amount.
The Income Tax Officer refused to allow any deduction of any part of the expenditure claimed by the assessee.
Even in this assessment year the entire interest income was taxed under section 56 of the Act under the head "Income From Other Sources".
The appeals flied in respect of this assessment year also were unsuccessful.
In respect of both these assessment years the following identical question was directed to be referred by the High Court under section 56(2) of the Act on the refusal of the Tribunal to refer the same under section 256( 1): "Whether on the facts and in the circumstances of the case, the assessee is entitled to the deduction of the whole or any part of the expenses incurred by the Liquidator in the computation of the assessee 's total income".
It may be mentioned that in respect of the assessment year 196263 the assessee had claimed deduction of simmilar expenditure from the interest income earned from fixed deposit.
At the instance of the assessee the Tribunal re ferred the following question: "Whether, on the facts and in the circum stances of the case, the sum of Rs. 13,023 is an admissible charge against the income of the previous year".
In the decision reported in Vijay Laxmi Sugar Mills Ltd. vs Commissioner of Income Tax, Delhi Central, All.
the High Court answered that reference holding that the income from the fixed deposit has to be considered as income from other sources and only that ex penditure can be deducted which under section 57(iii) of 387 the Act can be considered as incurred for earning that income and that the expenses claimed are not related to the earning of that income.
Accordingly the High Court answered the question in the negative and in favour of the Revenue.
It may also be mentioned that the assessing officers and the Tribunal followed this decision which was assessee 's own case for the earlier assessment year, in the assessments now in question.
The learned counsel for the appellant canvassed the correctness of the view propounded in Vijay Laxmi Sugar Mills Ltd. vs Commissioner of Income Tax, Delhi Central, (supra).
The learned counsel contended that among the ob jects mentioned in the memorandum of association of the company provision is made for advancing and lending money, investment of the company 's money and dealing in debentures, shares, stocks and other securities and carrying on various other businesses such as the company considered desirable in lieu of any other business which it was authorised to carry on.
Therefore, in effecting sale and realising of the assets of the company in Liquidation and investing in fixed depos its the Liquidation was engaged in the businesses of making investment in fixed deposits.
The interest income earned therefrom is a business income taxable under section 28 of the Act and not under section 56 of the Act under the head "Income From Other Sources".
If this contention of his is right the expenditure incurred by the Liquidator shall also be considered as for the purpose of earning the above men tioned income or at least could be said as wholly and exclu sively laid out or expended for the purposes of that busi ness and deductable from the total income earned by the company during the relevant previous year.
We are wholly at a loss to understand how this argument is possible on the facts and circumstances of this case.
As already stated the company had been directed to be wound up and a Liquidator was appointed by the High Court as early as in 1950.
The company before its Liquidation was engaged in the manufac ture of sugar.
The records do not disclose that the Liquida tor was carrying on the business of manufacture of sugar or any trading activity for the purpose of facilitating the winding up.
The statement of facts on record show that the Liquidator realised certain amount by way of sale of the assets of the company in Liquidation and it is those sale proceeds that was invested in fixed deposit which earned the interest.
The Liquidator in merely realising the assets of the company could not be considered as carry on any business of the company.
The activity of realising the assets and banking them in fixed deposit was in the course of winding up and it was not in furtherance of any business activity 388 carried on by the company before its winding up.
There may be cases where the Liquidator may be said to carry on the company 's business in so far as is necessary for the winding up or facilitate the winding up or realise the assets of the company in such a way as to involve the carrying on trade.
But in this case there is no evidence in this regard.
In fact the winding up order was made as early as in 1950 and nothing of the winding up activity is in evidence.
The only accepted fact is that the interest income was derived from fixed deposits purchased out of the pro ceeds of sale of assets during winding up.
The assessee, therefore, could not be said to have carried on any business to bring the interest income within the meaning of section 28 of the Act and that therefore the interest income was liable to be assessed only under the head "Income From Other Sources".
Very near to the facts of this case is the decision reported in Morvi Mercantile Bank Ltd. (In Liquidation) vs Commissioner of Income Tax, Gujarat, Guj.
In that case the assessee a banking company was compul sorily wound up and its licence was suspended by the Reserve Bank.
The Official Liquidator realised the assets and in vested the money in short term deposit pending distribution.
It was contended on behalf of the company in Liquidation that the income realised by the Liquidator was business income and that the Income Tax Officer was not right in treating it as "Income From Other Sources".
Rejecting this contention the Gujarat High Court held: "That the assets of which the liquidator was seized and which he tried to realise for purposes of winding up were of capital nature and they cannot be said to be business assets; nor can it be said that merely because he was investing the realisations, assuming that that was permissible either under the memorandum or under the statute, the activities which he was carrying on as a liquidator were those of a businessman.
In the circumstances, therefore, we cannot uphold the contention of Mr. Patel that the liquidator was making for merecantile necessity the investment of realisations as a business for beneficial winding up of the company.
The Tribunal has found as a fact that the main business of the assessee company having gone as a result of the winding up order, there did not remain any other activity 389 which can be legitimately said to be a busi ness activity and whatever the liquidator did was merely as a liquidator for purposes of liquidation of the company".
This is indeed the view to be taken even in this case also.
The Tribunal was, therefore, right in holding that the interest income in the instant case is not governed by section 28 but fails to be considered under section 56.
The next submission of the learned counsel for the assesee was that in the course of effecting the winding up of the assessee company the Liquidator has been incurring expenses such as salaries, legal fees, travelling expenses and other liquidation expenses and that these expenses are allowable deduction from income earned by way of interest from fixed deposits in the relevant year.
In computing the income chargeable under the head "Income From Other Sources", section 57(iii) provides that deduction is to be made in respect of expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income.
The question for consideration, therefore, is wheth er the expenses of the type incurred by the Liquidator in this case can be said to have been incurred solely for the purpose of earning the interest income.
It is true that the connection between the expenditure and the earning of income need not be direct and it may be indirect.
But since the expenditure must have been incurred for the purpose of earning that income there should be some nexus between the expenditure and the earning of the income.
There is not even some sort of an evidence to show that the expenses incurred by the Liquidator was to facilitate the earning or at least for protecting of the income.
The interest accrues SUI GENERIS.
The interest is payable by the bank whether it is claimed or not and whether there is any establishment or not.
Normally there was no necessity for spending anything separately for earning the interest.
However we may hasten to add that if any explenditure was incurred like commission for collection or such similar expenditures which may be considered as spent solely for the purpose of earning that income, the position may be different.
But that was not so in this case.
It could not also be said that the expenditure incurred was to preserve or acquire the asset.
Nor could it be said that the expenses were incurred for the purpose of maintenance of the source.
The requirement under section 57(iii) that the expenditure should have been incurred "for the purpose of making or earning such income" show that the object of spending or the end or aim or the intention of such spending was for earning the interest 390 income.
There could be no doubt that the expenditure incurr eid by the Liquidator in this case can by no stretch be said to have been incurred with the object or for the purpose of earning the interest income.
The Tribunal was, therefore, right in holding that the expenses claimed are not related to the interest income and was not a deductable expenditure under section 57.
We are, therefore, of the view that the High Court correctly answered the reference in the negative and in favour of the Revenue.
The appeals are accordingly dismissed with costs.
R.P. Appeals dismissed.

dataset_name: IN-Abs

summary:
The appellant company was ordered to be wound up in 1949.
In the course of its winding up the liquidator sold certain assets of the company and invested the sale proceeds thereof in fixed deposits with certain banks.
The liquidator incurred certain expenditures on salaries, legal fees, travelling expenses, postage and stationery.
The assessee company claimed a deduction of the said expenses from the interest income.
The I.T.O. did not allow it, and assessed the entire interest income as taxable u/s 56 of the Income Tax Act, 1961 under the head "Income from other sources".
The assessment orders were confirmed by the Appellate As sistant Commissioner and by the Income Tax Appellate Tribu nal in appeal.
On a reference by the Tribunal the High Court held that the income from fixed deposit was income from other sources; and it disallowed deduction of the expenditure section 57(iii) on the ground that the expenses claimed were not related to the earning of the interest income.
Aggrieved the assessee companY preferred appeal by special leave to this Court.
On the questions whether: (1) in effecting the sale and realisation of the assets of the Company in liquidation and investing the same in fixed deposits the liquidator was engaged in the business of the company and the interest income was a business income taxable u/s 28 of the Act and not under section 56 under the head "Income from other sources", and (2) the expenses incurred by the liquidator were in curred solely for the 384 purpose of earning the interest income so as to claim deduc tion section 57(iii).
Dismissing the appeal, this Court, HELD: 1.
The Liquidator in merely realising the assets of the Company could not be considered as carrying on any business of the Company.
[387G] 2.
In the instant case, the company before its liquida tion was engaged in the manufacture of sugar.
The records did not disclose that the liquidator was carrying on the business of manufacture of sugar or ' any trading activity for the purpose of facilitating the winding up.
The only accepted fact was that the interest income was derived from fixed deposits purchased out of the proceeds of sale of assets during winding up.
The assessee, could not be said to have carried on any business to bring the interest income within the meaning of section 28 of the Act and, therefore, the interest income was liable to be assessed only under the head "Income from other sources".
The Tribunal was, there fore, right in holding that the interest income in the instant case was not governed by section 28 but fell to be con sidered under section 56.
[387F; 388B C; 389A B] Vijay Laxmi Sugar Mills Ltd. vs Commissioner of Income Tax, Delhi Central, All., affirmed.
Morvi Mercantile Bank Ltd. vs Commissioner of Income Tax, Gujarat., Guj., approved.
3.1 In computing the income chargeable under the head "Income from other sources", requirement under section 57(iii) of the Act is that the expenditure should have been incurred "for the purpose of making or earning such income" and the deduction is to be made in respect of expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income.
[389C D & G] 3.2 It is true that the connection between the expendi ture and the earning of income need not be direct and it may be indirect.
But since the expenditure must have been in curred for purpose of earning that income, there should be some nexus between the expenditure and the earning of the income.
[389D E] 3.3 The interest accrues sui generis.
The interest is payable by the bank whether it is claimed or not and whether there is any establishment or not.
[389E F] 385 3.4 In the instant case there could be no doubt that the expendidure incurred by the liquidator can by no stretch be said to have been incurred with the object or for the pur pose of earning the interest income.
It could not be said that the expenditure incurred was to preserve or acquire the asset.
Nor could it be said that the expenses were incurred, for the purpose of maintenance of the source.
The Tribunal was, therefore, right in holding that the expenses claimed were not related to the interest income and was not a de ductable expenditure under section 57.
[390A B; 389G]


judgement:
ivil Appeal No. 3235 of 1991.
From the Judgment and Order dated 14.8.1990 of the Karnataka High Court in Writ Petition No. 3436 of 1980.
Harish Salve, K.P. Kumar, Ravinder Narain, P.K. Ram and Ms. Amrita Mitra for the Appellant.
R.N. Narasimhamurthy, K.H. Nobin Singh and M. Veerappa for the Respondents.
The following Order of the Court was delivered: By this petition, Messrs Mangalore Chemicals & Fertilis ers Limited, a registered dealer under the Karnataka Sales Tax Act, 1957, ("Act") seeks special leave to appeal to this court from the judgment and order dated 14th August, 1990 of the High Court of Karnataka in W.P. No. 3436 of 1980.
We have heard Shri Harish Salve, learned counsel for the petitioner and Shri R.N. Narasimhamurthy, learned Senior Counsel for the respondent Revenue.
Special leave granted.
On 30th June, 1969, State Government issued a noti fication in exercise of powers referable to sec.
8A of the Act providing certain incentives to enterpreneurs starting new industries in the State, pursuant to State 's policy for "rapid industrialisation".
The notification contains a package of reliefs and incentives including one concerning relief from payment of sales tax with which this appeal is concerned.
The clause in the said notification of 1969 relevant for the present purpose reads: 340 "(1).
Sales tax: A cash refund will be allowed on all sales tax paid by a new industry on raw materials purchased by it for the first five (5) years from the date of the industry goes into production, eligibility to the conces sions being determined on the basis of a certificate to be issued by the Department of Industries and Commerce.
" This was followed by a further notification dated 11th August, 1975 envisaging certain modified procedures for effectuating the reliefs contemplated by the earlier exemp tion notification of 30th June, 1969.
The relevant portions of the Preamble and the body of the notification say: Preamble: ". .
The Commissioner of Commercial Taxes has suggested that New Indus tries covered by the above scheme might be permitted to adjust the refunds to which they would be eligible against the sales tax pay able by them.
Order In partial modification of the Gov ernment order cited (2) above, Government are pleased to prescribe the following procedure for claiming refund of sales tax by new indus tries.
The new industries intending to take advantage of the system of adjustment shall apply to the Deputy Commissioner of Commercial Taxes (Administration) of the Division concerned through the assessing authority.
The application must contain the following particulars.
i) Name and address of the new industry; ii) Date of commencement of the industry; iii) Reference number of the certificate issued by the Director of Industries & Com merce, Bangalore; iv) Year for which the permission to withhold tax amount is related; v) The description of finished products in which the materials are used.
341 3.
The Deputy Commissioner of Com mercial Taxes (Administration) of the con cerned Division, after scrutinising the appli cation filed by the new industry and after satisfying himself that the industry is cov ered by the scheme sanctioned in G.O. No. 0I 58 FMI 69 dated 30.6.1969 will permit the industry to withhold the amount of tax payable on raw materials purchased and used in the manufacture of goods.
Omitted as unnecessary 5.
The new industry may apply for permission at any time during the year subject to its renewal every subsequent year.
Until permission of renewal is granted by the Deputy Commissioner of Commercial Taxes, the new industry should not be allowed to adjust the refunds.
At the end of the assessment year, particulars should be formulated in the annual return of the total amount adjusted during the entire year.
Along with the return, details prescribed in Government Order No. FD 428 CSL 70 dated 1.2.
1971 should be furnished.
6) * * 7) * Omitted as unnecessary.
" * 8) * * 3.
Appellant, it is not in dispute, had the necessary eligibility under the original exemption notification of 1969.
The controversy is confined only to the question of the manner of effectuating the refund of sales tax that appellant, admittedly, was entitled to.
Some particulars as to the application made by the appellant for grant of permission might, perhaps, be neces sary here.
For the assessment year 1976 77, the appellant made such an application to Deputy Commissioner of Sales tax (Administration) on 10th November, 1976 for adjustment of the refunds against sales tax due.
This permission was granted with retrospective effect from 1st May, 1976, vali dating the adjustments which the appellant had made during the interregnum.
However, for the three subsequent years viz., 1977 78, 1978 79 342 and 1979 80, similar applications which were made on 29th March, 1977, 20th March, 1978 and 8th March, 1979, respec tively, remained undisposed of.
In the meanwhile, in antici pation of the permission appellant adjusted the refund against tax payable for these years and filed its montly returns setting out adjustments so effected.
There is, as set out earlier, no dispute that the appellant was entitled to the benefit of the notification dated 30th June, 1969.
There is also no dispute that the refunds were eligible to be adjusted against sales tax payable for respective years.
The only controversy is wheth er the appellant, not having actually secured the "prior permission" would be entitled to adjustment having regard to the words of the notification of 11th August, 1975, that "until permission of renewal is granted by the Deputy Com missioner of Commercial Taxes, the new industry should not be allowed to adjust the refunds".
The contention virtually means this: "No doubt you were eligible and entitled to make the adjustments.
There was also no impediment in law to grant you such permission.
But see language of clause 5.
Since we did not give you the permission you cannot be permitted to adjust.
" Is this the effect of the law? The sales tax already paid by the appellant on the raw materials procured by it is the subject matter of the re funds.
The sales tax against which the refund is sought to be adjusted is the sales tax payable by appellant on the sales of goods manufactured by it.
If the contention of the Revenue is correct, the position is that while the appellant is entitled to the refund it cannot, however, adjust the same against current dues of the particular year but should pay the tax working out its refunds separately.
The situa tion may well have been such but the snag comes here.
If the adjustments made by the appellant in its monthly statements are disallowed, the sales tax payable would be deemed to be in default and would attract a penalty ranging from 1 1/2% to 21/2% per month from the date it fell due.
That penalty, in the facts of this case, would be very much more than the amounts of refund.
What emerges from the undisputed facts is that appel lant was entitled to the benefit of these adjustments in the respective years.
It had done and carried out all that was necessary for it to do and carry out in that behalf.
The grant of permission remained pending on account of certain outstanding inter departmental issues as to which of the departments the Department of Sales tax or the Department of Industries should.
absorb the financial impact of these concessions.
343 Correspondence indicates that on account of these questions, internal to administration, the request for permission to adjust was not processed.
On 27th March 1979, the Deputy Commissioner of Commercial Taxes wrote to the appellant to say that the orders on appellant 's application for permis sion would be passed only on receipt of the clarification from the Government on these matters.
While the matter stood thus, on 9th January, 1980, the Commercial Tax Officer of the concerned jurisdiction issued three demand notices demanding payment of the sales tax.
He said prior permission to adjust "had not been con sidered by the Deputy Commissioner of Managlore Division, Mangalore, and, therefore, the Commercial Tax Officer was obliged to proceed to recover the taxes." Steps for recovery of the penalities were also initiated.
Thereafter, in Febru ary, 1980, the appellant moved the High Court for issue of writ of mandamus to quash the demand notices and the pro ceedings initiated for recovery of penalty under sec.
13 of the Act.
The contention in the High Court were somewhat di.fferent from those urged before us.
Before the High Court the Revenue asserted that the very conditions of eligibility for entitlement to these concessions stood modified under a subsequent notification of 12th January, 1977 and that appellant did not satisfy the altered conditions of eligi bility.
The question, therefore, was whether enterpreneurs who had commenced their ventures prior to 12th January, 1977, could be held to be governed by the terms of the later notification of 12th January 1977.
This question, in princi ple, had been settled by a decision of this Court in Assist ant Commissioner of Commercial Taxes (Asst.), Dharwar & Ors.
vs Dharmendra Trading Co. & Ors., [ ; The question that arose there pertained to another condition stipulated in the same notification of 12th January, 1977.
This Court held that industries established prior to that date were not governed by those altered conditions.
Though in the present case the altered condition set up against appellant was a different one, on the principle decided in Dharmendra Trading Company 's case the altered condition would not be attracted.
But the High Court took a different view of the matter.
It held, in our opinion quite erroneous ly, that the principle of the earlier decision of this Court was not applicable because it was rendered in the context of another condition in the 1977 notification.
What fell for decision was not whether a particular condition was or was not applicable; but the very basic question whether a subse quent notification could undo the eligibility for the con cession stipulated and conferred under the 1969 notifica tion.
344 Shri Narasimhamurthy with his usual fairness said that he found it difficult to support the approach of the High Court to the question.
The main point on which the case turned is thus settled in favour of the appellant.
But a subsidiary question arose whether the grant of permission for adjustment could at all be made after the period to which such adjustment related had itself expired.
On this, the High Court said: " . .
But under Ext.
B, the 1975 noti fication, a clear procedure was provided in order to claim the benefit of refund on the sales tax paid on raw materials purchased by the industrialists.
The industrialists claim ing the benefit had to secure the prior per mission of the assessing authority to withhold the tax subject to the Government 's permis sion.
In other words, prior permission was a condition precedent.
In the instant case, Mr. Kumar was not able to satisfy us, permission had indeed been granted.
On the other hand, he fairly conceded that though an application was made, no permission was actually granted to withhold the payment.
Therefore, in view of the 1975 notification prescribing the proce dure for claiming the benefit under 1969 notification as at exhibit A, there has been no compliance and as such, the petitioner will not be entitled to withhold the tax.
With the result, the demand at Annexure R.S and T would be justifiable and legal." (Emphasis supplied) This is the only ground on which the appellant 's right to adjustment is contested by the Revenue.
Shri Harish Salve urged that indisputably the permis sion for the three years had been sought well before the commencement of the respective years but had been withheld for reasons which were demonstrably extraneous.
Learned counsel emphasised that the basic eligibility was condi tioned by the notification of 30th June, 1969, which re quired a certificate from the Department of Industries and Commerce.
Both the eligibility and the fact that there was such certification from the Department of Industries were not disputed.
Indeed, the requirement of the annual permis sion for adjustment envisaged by the notification of 11th August, 1975 was, says counsel, merely procedural as clause 3 of the notification stipulated that if the conditions were satisfied there was no dispute they were the Deputy Com missioner 345 "will permit" the adjustment.
Counsel says that if, in these circumstances, the Deputy Commissioner withheld the permis sion law treats that as done which ought to have been done.
Shri Narasimha Murthy, however, sought to contend that the requirement of the prior permission was held and rightly by the High Court to be a 'condition precedent ' and that non satisfaction of that condition precedent, whatever be the reason for the non satisfaction, automatically en tailed the logical consequences.
Learned counsel further submitted that it was not as if the right to the refund was denied or defeated by the inaction of the Deputy Commission er but only one mode of the refund by adjustment became unavailable.
Learned counsel urged that the benefit envis aged by the notification of 11th August, 1975 was in the nature of a concession and that the appellant in order to avail itself of its benefit had to show strict compliance with condition subject to which it was available.
Learned counsel placed reliance on Kedarnath Jute Munufacturing Co. vs Commercial Tax Officer, Calcutta & Ors., ; and Collector of Central Excise, Bombay and Anr.
vs Messrs Parle Exports (P) Ltd., ; to support his contention that where exemptions were concerned, the condi tions thereof ought to be strictly construed and strict compliance with them exacted before a person could can lay claim to the benefit of the exemptions.
Learned counsel submitted that the point was not whether there was any justification for delaying the permission; but, more importantly, whether appellant at the relevant point of time had, such prior permission or not and that if, in the meanwhile, the period itself expired, no relief was possible as, quite obviously, the requirements of 'prior permission ' became impossible of compliance.
Shri Narasimha Murthy relied on the following observa tions of this court in Kedarnath Jute Manufacturing Co. 's case to support this contention: " . .
But the said exemption is made subject to a proviso.
Under that proviso, in the case of such sales a declaration form duly filled up and signed by the registered dealer to whom the goods are sold and containing the prescribed particulars on a prescribed form obtainable from the prescribed authority has to be furnished in the prescribed manner by the dealer who sells the goods . . 346 " . . .
The provision pre scribing the exemption shall, therefore, be strictly construed. . . . .
To accept the argument of the learned counsel for the appellant is to ignore the proviso altogether, for if his contention be correct it will lead to the position that if the declaration form is furnished, well and good; but if not fur nished, other evidence can be produced.
That is to rewrite the clause and to omit the proviso.
That will defeat the express inten tion of the Legislature . . " 11.
We have given our careful consideration to these submissions.
We are afraid the stand of the Revenue suffers from certain basic fallacies, besides being wholly techni cal.
In Kedarnath 's case, the question for consideration was whether the requirement of the declaration under the proviso to Sec.
5(2)(a)(ii) of the Bengal Finance (Sales tax) Act, 1941, could be established by evidence aliunde.
The court said that the intention of the Legislature was to grant exemption only upon the satisfaction of the substantive condition of the provision and the condition in the proviso was held to be of substance embodying considerations of policy.
Shri Narasimha Murthy would say the position in the present case was no different.
He says that the notification of 1 1th August, 1975 was statutory in character and the condition as to 'prior permission ' for adjustment stipulated therein must also be held to be statutory.
Such a condition must, says counsel, be equated with the requirement of production of the declaration form in Kedarnath 's case and thus understood the same consequences should ensue for the non compliance.
Shri Narasimhamurthy says that there was no way out of this situation and no adjustment was permissible, whatever be the other remedies of the appellant.
There is a fallacy in the emphasis of this argument.
The consequence which Shri Narasimha Murthy suggests should flow from the non compliance would, indeed, be the result if the condition was a substantive one and one fundamental to the policy underlying the exemption.
Its stringency and mandatory nature must be justified by the purpose intended to be served.
The mere fact that it is statutory does not matter one way or the other.
There are conditions and conditions.
Some may be substantive, mandatory and based on considera tions of policy and some others may merely belong to the area of procedure.
It will be erroneous to attach equal importance to the non observance of all conditions irrespec tive of the purposes they were intended to serve.
In Kedarnath 's case itself this Court pointed out that the string 347 ency of the provisions and the mandatory character imparted to them were matters of important policy.
The Court ob served: " . .
The object of section 5(2)(a)(ii) of the Act and the rules made thereunder is self evident.
While they are obviously intended to give exemption to a dealer in respect of sales to registered dealers of specified classes of goods, it seeks also to prevent fraud and collusion in an attempt to evade tax.
In the nature of things, in view of innumerable transactions that may be entered into between dealers, it will wellnigh be impossible for the taxing authorities to ascertain in each case whether a dealer has sold the specified goods to another for the purposes mentioned in the section.
Therefore, presumably to achieve the two fold object, namely, prevention of fraud and facilitating administrative effi ciency, the exemption given is made subject to a condition that the person claiming the exemption shall furnish a declaration form in the manner prescribed under the section.
The liberal construction suggested will facilitate the commision of fraud and introduce adminis trative inconveniences, both of which the provisions of the said clause seek to avoid.
" (Emphasis Supplied) (See: ; at 630) Such is not the scope or intendment of the provisions concerned here.
The main exemption is under the 1969 notifi cation.
The subsequent notification which contain condition of prior permission clearly envisages a procedure to give effect to the exemption.
A distinction between the provi sions of statute which are of substantive character and were built in with certain specific objectives of policy on the one hand and those which are merely procedural and technical in their nature on the other must be kept clearly distin guished.
What we have here is a pure technicality.
Clause 3 of the notification leaves no discretion to the Deputy Commissioner to refuse the permission if the conditions are satisfied.
The words are that he "will grant".
There is no dispute that appellant had satisfied these conditions.
Yet the permission was withheld not for any valid and substan tial reason but owing to certain extraneous things concern ing some inter departmental issues.
Appellant had nothing to do with those issues.
Appel |ant is now told "we are sorry.
We should have given you the permission.
But now that the period is over, nothing can be done".
The answer to this is in the words of Lord Denning: "Now I know that a 348 public authority can not be estopped from doing its public duty, but I do think it can be estopped from relying on a technicality and this is a technicality" (See Wells vs Minister of Housing and Local Government, at 1007).
Francis Bennion in his "Statutory Interpretation", 1984 edition, says at page 683: "Unnecessary technicality: Modern courts seek to cut down technicalities attendant upon a statutory procedure where these cannot be shown to be necessary to the fulfilment of the purposes of the legislation.
Shri Narasimhamurthy again relied on certain obser vations in Collector of Central Excise, Bombay 1 & Anr.
vs M/s. Parle Exports (P) Ltd.; , in support of strict construction of a provision concerning exemptions.
There is support of judicial opinion to the view that exemp tions from taxation have a tendency to increase the burden on the other unexempted class of tax payers and should be construed against the subject in case of ambiguity.
It is an equally well known principle that a person who claims an exemption has to establish his case.
Indeed, in the very case of M/s. Parle Exports (P) Ltd. relied upon by Sri Narasimhamurthy, it was observed: "While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed.
It must, howev er, be borne in mind that absurd results of construction should be avoided.
" The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the Legislature manifest on the statutory language.
Indeed, the need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute.
If the words are plain and clear and directly convey the meaning, there is no need for any interpretation.
It appears to us the true rule of construction of a provi sion as to exemption is the one stated by this Court in Union of India & Ors.
vs M/s. Wood Papers Ltd. & Ors., [1991]JT(1) 151at 155.
Truly, speaking liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it.
When the question is whether a 349 subject jails in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction . " (Emphasis supplied) 13.
It appears to us that the view taken of the matter by the High Court does not acknowledge the essential dis tinction between what was a matter of form and w/hat was one of substance.
There was no other disentitling circumstance which would justify the refusal of the permission.
Appellant did not have prior permission because it was withheld by the Revenue without any justification.
The High Court took the view that after the period to which the adjustment related had expired no permission could at all be granted.
A permis sion of this nature was a technical requirement and could be issued making it operative from the time it was applied for.
We, therefore, allow the appeal, set aside the judgment of the High Court under appeal and direct the Deputy Commissioner of Sales Tax (Admn.) to grant the per mission for the said three years operative from the dates of the application.
The permission shall entitle the appellant to the adjustment of the refunds against the taxes due for the respective years.
We issue these directions in view of the admitted position that, apart from the technical objec tion that periods to which the applications related had since expired, there was no other, impediment for the grant of permission.
It also follows that the demand notices which proceed on the premise that adjustment of refunds against taxes due was unavailable can not also stand.
They are quashed.
There will be no order as to costs.
V.P.R. Appeal allowed.

summary:
On 30th June, 1969, State Government issued a notifica tion under Section 8A of the Karnataka Sales Tax Act, 1957, providing a package of reliefs and incentives including one concerning relief from payment of sales tax.
A further notification dated 11th August, 1975 was issued, envisaging certain modified procedures for effectu ating the reliefs contemplated by the exemption notification of 30th June, 1969.
For the assessment year 1976 77, the appellant made an application to the Respondent No. 1 on 10th November, 1976 for adjustment of the refunds against sales tax due and permission was granted with retrospective effect from 1st May, 1976 validating the adjustments, which the appellant had made during the interregnum.
For the three subsequent years, viz., 1977 78, 1978 79 and 197980, similar applications, which were made on 29th March 1977, 20th March 1978 and 8th March 1979 respectively, remained undisposed of.
In anticipation of the permission, appellant adjusted the refund against tax payable for these years and filed its monthly returns setting out adjustments so effected.
337 There was no dispute that the appellant was entitled to the benefit of the notification dated 30th June, 1969 and that the refunds were eligible to be adjusted against sales tax payable for respective years.
The respondent No. 1 in his letter dated 27.3.1979 informed the appellant that the orders on appellant 's appli cation for permission would be passed only on receipt of the clarification from the Government on the matters.
On 9th January, 1980, the appellant was issued three demand notices by the Commercial Tax Officer demanding payment of the sales tax, stating that as prior permission to adjust sales tax had not been considered by the respond ent No. 1, he was obliged to proceed to recover the taxes.
Steps for recovery of the penalties were also initiated.
The appellant moved the High Court for issue of writ of mandamus to quash the demand notices and the proceedings initiated for recovery of penalty under section 13 of the Act.
The High Court dismissed the writ petition, against which the present appeal was filed.
The appellant urged that indisputably the permission for the three years had been sought well before the commencement of the respective years but had been withheld for reasons, which were demonstrably extraneous; that the basic eligibil ity was conditioned by the notification of 30th June, 1969, which required a certificate from the Department of Indus tries and Commerce; that the requirement of the annual permission for adjustment envisaged by the notification of 11th August; 1975 was merely procedural, as clause 3 of the notification stipulated; and that if the conditions were satisfied, it was deemed that permission was given.
The respondents contended that it was not as if the right to the refund was denied or defeated by the inaction of the Deputy Commissioner but only one mode of the refund by adjustment became unavailable; that the benefit envis aged by the notification of 11th August, 1975 was in the nature of a concession and that the appellant in order to avail itself of its benefit had to show strict compliance with conditions subject to which it was available; that where exemptions were concerned, the conditions thereof ought to be strictly construed and strict compliance with them exacted before a person could lay claim to the 338 benefit of the exemptions; and that if, in the meanwhile, the period itself expired, no relief was possible as quite obviously, the requirements of 'prior permission ' became impossible of compliance.
Allowing the appeal, this Court, HELD: 1.
The main exemption is under the 1969 notifica tion.
The subsequent notification which contains condition of prior permission clearly envisages a procedure to give effect to the exemption.
[347E F] 2.
Clause 3 of the notification leaves no discretion to the Deputy Commissioner to refuse the permission, if the conditions are satisfied.
The words are that he "will grant".
There is no dispute that appellant had satisfied the conditions.
Yet the permission was withheld not for any valid and substantial reason, but owing to certain extrane ous things concerning some interdepartmental issues.
Appel lant had nothing to do with those issues.
[347F H] 3.
There was no other disentitling circumstance which would justify the refusal of the permission.
Appellant did not have prior permission, because it was withheld by the Revenue without any justification.
The High Court took the view that after the period to which the adjustment related had expired no permission could at all be granted.
A permis sion of this nature was a technical requirement and could be issued making it operative from the time it was applied for.
[349C D] 4.
A distinction between the provisions of statute which are of substantive character and were built in with certain specific objectives of policy on the one hand and those which are merely procedural and technical in their nature on the other must be kept clearly distinguished.
[347E G] 5.
The choice between a strict and a liberal construc tion arises only in case of doubt in regard to the intention of the Legislature manifest on the statutory language.
Indeed, the need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute.
If the words are plain and clear and directly convey the meaning, there is no need for any inter pretation.
[348F G] Assistant Commissioner of Commercial Taxes (Asstt.), Dharwar & Ors.
vs Dharmendra Trading Co. & Ors., ; ; Wells vs Minister of Housing and Local Government, at 1007 339 and Union of India & Ors.
vs M/s. Wood Papers Ltd. & Ors., [1991] JT (1) 151 at 155, referred to.
Kedarnath Jute Manufacturing Co. vs Commercial Tax Officer, Calcutta & Ors., ; at 630 and Col lector of Central Excise, Bombay and Anr.
vs Messrs Parle Exports (P) Ltd., ; , distinguished.
Francis Bennion: "Statutory Interpretation", 1984 edi tion at page 683, referred to.


judgement:
Appeal No. 11 of 1991.
From the Judgment and Order dated 15.10.1979 of the Punjab and Haryana High Court in C.Q.P. No. 1009 of 1974.
WITH Civil Appeal Nos.
2752/79, 1105/76, 29 & 985/87, 4950/89, 1032/79, 3331/83, SLP (Civil)No. 15/80, CMP.
No. 1350/80 and C.A. No. 1425 of 1976.
B. Sen, G.C. Sharma, S.K. Mehta, C.S. Aggarwal, BV.
Desai, Ms. Radha Rangaswamy, K.C. Dua, Umesh Khaitan, Dar shan Singh.
Praveen Kumar, M.M. Kashyap and S.K. Bagga for the Appellants.
J. Ramamurthy, B.B. Ahuja and Ms. A. Subhashini for the Respondents.
The Judgment of the Court was delivered by K. JAGANNATHA SHETTY, J.
The assessees in these appeals have made payments in cash exceeding a sum of Rs.2500 for some of the purchases of stock in trade.
The payments are not allowed as deductions in the computation of income under the head "profits and gains of business".
The payments are held to be in contravention of the terms of Section 40A(3) of the Income Tax Act, 1961 read with the Rule 6DD of the Income Tax Rules, 1962.
The assessees have appealed to this Court challenging the disallowance.
Two questions arise for consideration in these appeals; (i) The validity of Section 40A(3) of the Act; and (ii) The applicability of Section 40A(3) to payments made for acquir ing stock in trade.
Section 40A(3) so far as material provides: "40A. Expenses or payments not deductible in certain circumstances (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and Gains of business or profession.
XXX XXX XXX XXX 408 (3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March 1969) as may be speci fied in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding ten thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction: XXX XXX XXX Provided further that no disallow ance under this subsection shall be made where any payment in a sum exceeding ten thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circum stances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expedi ency and other relevant factors." Originally, Section 40A(3) required payments in respect of expenditure, which exceed Rs.2,500 to be made by a crossed cheque or a crossed bank draft.
On failure to do so, the payments made were disallowed in the computation of income.
In order to remove hardship to smaller assessees, the Amending Act, 1987, has raised this ceiling to Rs. 10,000.
Section 40A(3) begins with a non obstante clause.
It is an overriding provision which operates inspite of any thing to the contrary contained in any other provision of the Act relating to the computation of income under the head "profits and gains of business or profession".
The legisla ture has thus made it clear that the provisions of Section 40A will apply in supersession of other contrary provisions of the Act relating to the computation of income.
Sub sec tion (3) empowers the assessing officer to disallow, as a deduction any expenditure in respect of which payment is made of any sum exceeding Rs. 10,000 otherwise than by a crossed cheque or crossed bank draft.
Rule 6DD of the Income Tax Rules, 1962 refers to cases and circumstances in which payment of a sum exceeding Rs. 10,000 may be made otherwise than by a crossed cheque or by a crossed bank draft.
The Rule so far as it is relevant reads: "6DD.
Cases and circumstances in which payment in a sum exceeding ten thousand rupees may be made otherwise 409 than by a crossed cheque drawn on a bank or by a crossed bank draft No disallowance under sub section (3) of Section 40 A shall be made where any payment in a sum exceeding ten thousand rupees is made otherwise than by crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely: XXX XXX XXX XXX (j) in any other ease, where the assessee satisfies the Assessing Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft (1) due to exceptional or unavoidable circum stances; or (2) because payment in the manner aforesaid was not practicable, or would have caused genuine difficulty to the , payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes evidence to the satisfac tion of the Assessing Officer as to the genu ineness of the payment and the identity of the payee.
" As to the validity of Section 40A(3) it was urged that if the price of the purchased material is not allowed to be adjusted as against the sale price of the material sold for want of proof of payment by a crossed cheque or crossed bank draft, then the income tax levied will not be on the income but it will be on an assumed income.
It is said that the provision authorising levy tax on an assumed income would be a restriction on the right to carry on the business besides being arbitrary.
In our opinion, there is little merit in this conten tion.
Section 40A(3) must not be read in isolation or to the exclusion of Rule 6DD.
The Section must be read along with the Rule.
If read together, it will be clear that the provi sions are not intended to restrict the business activities.
There is no restriction on the assessee in his trading activities.
Section 40A(3) only empowers the assessing officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft.
The payment by crossed cheque or crossed bank draft is insisted on to enable the asses 410 sing authority to ascertain whether the payment was genuine or whether it was out of the income from disclosed sources.
The terms of Section 40A(3) are not absolute.
Consideration of business expediency and other relevant factors are not excluded.
The genuine and bona fide transactions are not taken out of the sweep of the Section.
It is open to the assessee to furnish to the satisfaction of the assessing officer the circumstances under which the payment in the manner prescribed in Section 40A(3) was not practicable or would have caused genuine difficulty to the payee.
It is also open to the assessee to identify the person who has received the cash payment.
Rule 6DD provides that an asses see can be exempted from the requirement of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule.
It will be clear from the provi sions of Section 40A(3) and rule 6DD that they are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chances to use black money for business transactions.
See: Mudiam Oil Company vs ITO, A.P.
If the payment is made by a crossed cheque drawn on a bank or a crossed bank draft then it will be easier to ascertain, when deduction is claimed, whether the payment was genuine and whether it was out of the income from disclosed sources.
In interpreting a taxing statute the Court cannot be oblivious of the proliferation of black money which is under circulation in our country.
Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business.
As to the second question it may be stated that the word 'expenditure ' has not been defined in the Act.
It is a word of wide import.
Section 40A(3) refers to the expenditure incurred by the assessee in respect of which payment is made.
It means all outgoings are brought under the word 'expenditure ' for the purpose of the Section.
The expendi ture for purchasing the stock in trade is one of such outgo ings.
The value of the stock in trade has to be taken into account while determining the gross profits under section 28 on principles of commercial accounting.
The payments made for purchases would also be covered by the word 'expendi ture ' and such payments can be disallowed if they are made in cash in the sums exceeding the amount specified under section 40A(3).
We have earlier observed that Rule 6DD has to be read along with Section 40A(3).
The Rule also contem plates payments made for stock in trade and raw materials.
This Rule is in accordance with the terms of Section 40A(3).
The Rule provides that an assessee can be exempted from the requirements of payment by crossed cheque or a crossed bank draft where the purchases are 411 made of certain agricultural or horticultural commodities or from a village where there is no banking facility.
Section 40A(3) is, therefore.
attracted to payments made for acquir ing stock in trade and other materials.
This is also the view taken by several High Courts.
See ' Sajowanlal Jaiswal vs CIT, Orissa; U.P. Hardware Store vs CIT, Allahabad; Ratan Udyog vs ITO, Allahabad; P.R. Textiles vs CIT, Kerala, [19801 Kerala; CIT, vs Kishan Chand Maheswari Dass, P & H; Kanti Lal Purshottam and Co. vs CIT, Raj; CIT, vs New Light Tin Mfg. Co., P & H; Fakri Automobiles vs CIT, Raj; Venkata Satayanarayana Timber Depot vs ITR, AP.; and Akash Films vs CIT, Karnataka.
The decisions of the High Courts of Andhra Pradesh, Orissa, Allahabad, Kerala, Karnataka, Punjab & Haryana, Rajasthan and Patna are to the effect that the payments made for purchasing stock in trade or raw materials should also be regarded as expenditure for the purpose of Section 40A(3).
The only discordant note struck on this aspect is by the Gauhati High Court in CIT vs Hardware Exchange, The Gauhati High Court has observed that Section 40A(3) applies only to payments made on account of 'expenditure incurred ' and the payment made purchase of stock in trade cannot be termed as 'expenditure incurred since money does not go irretrievably in such cases.
We are unable to agree with the view taken by the Gauhati High Court.
In this view of the matter we dismiss all these appeals and special leave petition with costs.
S.B. Appeals dismissed.

summary:
The assesses in these appeals have made payments in cash exceeding a sum of Rs.2500 for some of the purchases of stock in trade.
So while computing the income of the asses sees under the head "profits and gains of business" the assessing authority disallowed deduction on account of such payments held to be in contravention of the terms of section 40A(3) of the Income Tax Act, 1961 read with the Rule 6DD of the Income Tax Rules, 1962.
The assessees have challenged the same.
So in the in stant case the question under consideration before this Court is (i) the validity of section 40A(3) of the Act (ii) the applicability of section 40A(3) to payments made for acquiring stock in trade.
Originally section 40A(3) required payments in respect of expenditure which exceeded Rs.2500 to be made by a crossed cheque or crossed bank draft and by the Amending Act 1987 to remove hardships to smaller assessees the said amount has been raised to Rs. I0,000, Section 40A(3) begins with a non obstante clause so the legislature has made it clear that the provisions of section 40A(3) are overriding and operate inspite of any thing to the contrary contained in any other provisions of the Act relating to the computa tion of income under the head "profits and gains of business or profession".
Sub section (3) empowers the assessing authority to disallow as deduction of any expenditure in respect of which payment is made in cash exceeding Rs. 10,000 otherwise than by a crossed cheque or crossed bank draft.
Rule 6DD of Income Tax Rules, 1962 provides for cases and circumstances in which payment of a sum exceeding Rs. 10,000 may be made otherwise than by crossed cheque or by a crossed demand draft.
The assessees challenged on the ground that provisions of section 406 40A(3) intend to restrict the business activities.
Dismissing the appeals and Special Leave Petition, the Court, HELD: That section 40A(3) must not be read in isolation or to the exclusion of Rule 6DD.
This section must be read along with the Rule 6DD and if read together it is clear that the provisions of the section are not intended to restrict the business activities.
It only empowers the assessing officer to disallow the deductions claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft.
The same is insisted only to enable the assessing authority to ascertain whether it was out of the income from disclosed sources and even the terms of section 40A(3) are not absolute.
Considerations of business expediency and other relevant factors are not excluded, since it is open to the assessee to furnish the circumstances under which the payment was not practicable or would have caused genuine difficulty to the payee.
Rule 6DD provides that an assessee can be exempted from the require ment of payment by a crossed cheque or crossed bank draft in the circumstances specified under the rule.
Thus section 40A(3) and Rule 6DD are intended to regulate the business transactions and to prevent the use of unaccounted money or reduce the chance to use black money for business transac tions.
Moreover while interpreting a taxing statute the Court cannot be oblivious of the proliferation of black money which is in circulation in our country Thus any restraint intended to use or create black should not be regarded as curtailing the freedom of trade or business.
[409G 410E] The term expenditure as per section 40A(3), means all outgoings including the expenditure incurred for purchasing the stock in trade.
Since to determine the gross profits the value of the stock in trade has to be taken into account.
So payments can be disallowed if they are made in cash in the sums exceeding the amount specified under section 40A(3) and also not provided for exemption under Rule 6DD.
Thus section 40A(3) is attracted to payments made for acquiring stock intrade and other materials.
[410G 411A] Sajowanlal Jaiswal vs CIT, Orissa; U.P. Hardware Store vs CIT, ; Allahabad; Ratan Udyog vs ITO, Allahabad; P.R. Textiles vs CIT Kerala, Kerala; CIT vs Kishan Chand Maheswari Dass, P & H; Kanti Lal purshottam & Co. vs CIT, Raj; CIT vs New Light Tin Mfg. Co., P & H; Fakri Automobiles vs CIT, Raj; 407 Venkata Satayanarayana Timber Depot vs ITR, AP.
and Akash Films vs CIT, Karnataka, approved.
CIT vs Hardware Exchange, , reversed.