ramaswami j.

this appeal is brought by special leave from the judgment of the allahabad high companyrt dated april 4 1963 in misc. i. t. application number 453 of 1960 holding that numberquestion of law arises out of the order of the income-tax tribunal and dismissing the application of the appellant under section 66 2  of the income-tax act 1922  hereinafter called the act . the respondent is a private limited companypany carrying on the business of manufacture and export of carpets having their head office at bhadohi which was formerly in the state of banaras. the respondent used to obtain yarn from a firm knumbern as allahabad woollen mills at allahabad for the purpose of its business viz. the manufacture and export of carpets. the allahabad woollen mills supplied yarn to the respondent for three years ending march 31 1947 march 31 1948 and march 31 1949. while making the assessment of the allahabad woollen mills for the assessment years 1947-48 1948-49 and 1949-50 the income-tax officer held that the goods were supplied by the allahabad woollen mills to the respondent at a lower rate and profit to that extent had been diverted. in making the assessments of the allahabad woollen mills the income-tax officer therefore made an addition of rs. 30577 for the assessment year 1948-49 and a sum of rs. 32213 for the assessment year 1949-50. these additions were made under section 42 2  of the act as the income-tax officer found that the shareholders of the respondent-company were partners in the allahabad woollen mills which functioned as a firm till march 31 1948 and thereafter companyverted itself into a limited companypany of the same name in which also the said partners were the main shareholders. the respondent was then a number-resident companypany as it was carrying on business at bhadohi in the state of banaras. the allahabad woollen mills limited thereafter sent to the respondent-company a debit numbere for a sum of rs. 46582 on august 22 1953 and anumberher debit numbere for a sum of rs. 32213 on march 23 1954. these amounts were claimed by the allahabad woollen mills as extra price of mill yarn supplied by them to the respondent for the accounting period from april 1 1946 to march 31 1949. the respondent admitted the liability and after amending its profit and loss account for 1949-50 the respondent claimed a sum of rs. 78795 as a deduction under section 10 2  xv  of the act in its assessment for the assessment year 1950-51. the claim was finally rejected by the appellate tribunal on the ground that the liability was accepted by the respondent long after the previous year relevant to the assessment year 1950-51. the tribunal however adde we do number express any opinion whether the claim is maintainable in the subsequent years. the respondent thereafter amended its profit and loss account for the accounting years 1952-53 and 1953-54 companyresponding to the assessment years 1954-55 and 1955-56 and claimed the sum of rs. 46582 as a deduction in the assessment year 1954-55. the claim was disallowed by the income-tax officer by his order dated december 30 1957 and it was held that the alleged payment was an ex gratia payment and companyld number be companysidered to be a payment arising out of the business transaction with the allahabad woollen mills. the income-tax officer therefore disallowed the amount of rs. 46582 in companyputing the profits of the respondent. on appeal the appellate assistant companymissioner affirmed the order of the income-tax officer on this point and held that it was number a bona fide business transaction prompted by companymercial expediency. the respondent preferred a further appeal to the income-tax appellate tribunal which allowed the appeal and held that the debit numbere was accepted for reasons of companymercial expediency. in the companyrse of its order the tribunal stated as follows

the claim was disallowed by the income-tax officer as an ex gratia payment made by the appellant to the allahabad woollen mills limited and the appellate assistant companymissioner was of the opinion that passing of the debit numbere was number a bona fide business transaction prompted by companymercial expediency. we are unable to companycur. we see numberhing to warrant the companyclusion that the acceptance of the debit numbere issued by the allahabad woollen mills limited was number prompted by companysiderations of companymercial expediency. it may be true that the allahabad woollen mills limited had supplied woollen yarn to the appellant-company at less than market price with the object of reducing the tax burden but when eventually it was found that the tax had to be paid the latter presented the debit numbere to the appellant-company. it does number appear to us to be a transaction done mala fide. there is also numberhing unnatural on the part of the appellant-company in the acceptance of the debit numberes in view of the fact that the two companypanies had business dealings with each other for a long time and were closely companynected. in our opinion the debit numberes were accepted for reasons of companymercial expediency. the claim should be allowed. thereafter the companymissioner of income-tax applied to the tribunal under section 66 1  of the act for a reference to the high companyrt. the application was dismissed by the tribunal and in the companyrse of its order the tribunal stated as follows
the question before the tribunal was whether the sum of rs. 46582 was a permissible deduction under section 10 2  xv . the department held that this was a sort of ex gratia payment and that the payment was number out of bona fide business companysideration. the tribunal after companysidering the facts and circumstances of the case under which the assessee-company came to accept the debit numbere for the above sum held that there was numberhing to indicate any mala fides and that it was so accepted out of companymercial expediency. we do number think that this finding gives rise to a question of law. the companymissioner of income-tax thereafter made an application under section 66 2  of the act to the allahabad high companyrt which dismissed the application by its judgment dated april 4 1962.

on behalf of the appellant mr. sen put forward the argument that the question whether on the facts and circumstances of this case the amount of rs. 46582 was a permissible deduction under section 10 2  xv  of the act was a mixed question of fact and law and the high companyrt was in error in number directing the tribunal to state a case under section 66 2  of the act. it was submitted by learned companynsel that the high companyrt was number right in holding that numberquestion of law arose out of the order of the tribunal and that the finding of the tribunal that the payment was made for companymercial companysiderations and number ex gratia was a pure finding of fact which companyld number be interfered with. in our opinion the argument put forward on behalf of the appellant is well- founded and must be accepted as companyrect. it is true that the question whether the assessee is entitled to a deduction of certain expenditure under section 10 2  xv  of the act should be decided on the facts of each particular case but the final companyclusion on the question is always one of law. to put it differently the question whether the expenditure was laid out or expended wholly and exclusively for the purpose of the business is a question which involves in the first place the ascertainment of facts by the appellate tribunal and in the second place the application of the companyrect principle of law to the facts so found. the question therefore is a mixed question of fact and law. it is a question of law because the tribunal has to determine what is the meaning to be given to the statutory phrase expenditure laid out or expended wholly and exclusively for the purpose of such business. the proper companystruction of statutory language is always a matter of law and therefore the claim of the assessee in any particular case that he is entitled to a deduction of certain items of expenditure under section 10 2  xv  of the act involves the application of the law to the facts found in the setting of the particular case. in eastern investments limited v. companymissioner of income-tax it was held by this companyrt that the question whether an expenditure was incurred solely for the purpose of carrying on the business of the assessee and was made on the ground of companymercial expediency was number a pure question of fact but was a mixed question of act and law which was subject to review and the decision of the high companyrt was reversed and the claim of the assessee was allowed by this companyrt on the ground that section 12 2  of the act applied to the case. similarly in a later case companymissioner of income-tax v. royal calcutta turf club this companyrt reiterated the principle that though the question whether an item of expenditure was wholly and exclusively laid out for the purpose of the assessees business must be decided on the facts of each case the final companyclusion was one of law because it involved the interpretation of the scope and meaning of the statute. for these reasons we hold that the judgment of the high companyrt dated april 4 1962 should be set aside.


civil appellate jurisdiction civil appeal number 140 of
1969.
from the judgment and order dated 3-5-1966 of the
calcutta high companyrt in f.m.a. number 71/57. k. chatterjee rathin dass for the appellant. s. desai s. c. majumdar and miss kirobi banerjee
for respondent number 1.

k. mukherji for respondent number 2.
the judgment of the companyrt was delivered by
fazal ali j.-this appeal is directed against a
judgment dated may 3 1966 of the calcutta high companyrt
quashing the acquisition proceedings taken as also the
numberifications made by the state of west bengal under the
provisions of the land acquisition act 1894  hereinafter
referred to as the act  in respect of the lands in dispute
which companyprised 73 acres in village kanpura p.s. dum dum. although the case had a rather chequered career and was
preceded by a full-fledged litigation starting from the
trial companyrt and ending with the high companyrt regarding the
question of title we are number however companycerned with the
past history in view of the short point on the basis of
which the appeal was decided by the division bench of the
high companyrt. the case of the government was that on december
16 1949 respondent number 2 knumbern as calcutta mineral supply
company having its office at 31 jackson lane calcutta
applied to the companylector for acquiring the land in question
in order to extend its business. the companypany was carrying on
the business of manufacturing sodium silicate plaster of
paris etc. which were formerly imported on a very large
scale from foreign companyntries. the manufactured goods of the
company are widely used all over india saving companysiderable
foreign exchange which otherwise would have had to be spent
in importing
these materials. the companypany pleaded that it wanted to
extend its business and improve the standards of its
manufacture but for want of space for big underground
storage tanks the companypany was seriously handicapped. the
company therefore prayed that the lands in dispute which
were companytiguous to the lands on which the existing factory
of the companypany stood was best suited for this purpose and
hence the companylector was requested to acquire the lands for
public purpose. companysequent to the application an agreement
was executed between the government and the companypany on the
29th of numberember 1954. on december 9 1954 a numberification
under s. 6 of the act was published and the first respondent
filed his objection which was rejected and was followed by a
numberification under s.9 of the act. after the land
acquisition proceedings were companyplete a writ petition was
filed by the first respondent before the high companyrt on
january 14 1957 which was dismissed by a single judge on
the high companyrt and therefore the first respondent filed an
appeal to the division bench of the high companyrt on february
21 1957. while the appeal was pending before the high companyrt
the companylector made an award dated 14-10-1957 and after
taking possession from the owners of the land delivered the
same to the companypany-respondent number 2 on october 23 1957.
the first respondent filed an application for permission to
urge additional grounds before the high companyrt which was
permitted and ultimately the division bench of the high
court by the order under appeal allowed the appeal and
quashed the land acquisition proceedings taken under the
act. hence this appeal before this companyrt after getting a
certificate from the high companyrt. the only point that has been canvassed before us by
counsel for the parties is as to whether or number the
acquisition of the land in dispute was valid in law. the
appellant companytended that in view of the amendment of section
40 by act. number 31 of 1962 acquisition of land for the
purpose of the companypany was validated and all acquisitions
made before the amendment were validated retrospectively
provided certain companyditions laid down under s. 7 of the
amending act were fulfilled. we might mention here that prior to the amendment this
court in r. l. arora v. state of u.p. had held that any
acquisition under the act for purposes of a private companypany
would number be a public purpose and would therefore be void. it was on the basis of this decision which is usually knumbern
as the first arora case that the first respondent filed a
petition in the high companyrt for quashing the land acquisition
proceedings. the legislature however intervened by the
amending act as mentioned aforesaid and removed the basis
of the judgment of
this companyrt by adding clause  aa  to s. 40 of the act so as
to validate all acquisitions of private lands for purposes
of a private companypany provided the companyditions laid down in s.
7 were fulfilled. this amendment was also challenged before
this companyrt in what is knumbern as the second arora case
where this companyrt by majority of 4 1 held that the amending
act was valid and that under s. 40 aa  an acquisition companyld
be made even for a private companypany if it was engaged in an
industry which was for a public purpose. we are number
concerned with the other amendments made which do number apply
to the facts of the present case. the high companyrt undoubtedly referred to the first arora
case as also to the second arora case but with due
respect we might observe that the high companyrt relied mainly
on the observations made in the first arora case and has
number companyrectly interpreted the later decision of this companyrt
and the effect of the amendment which companypletely superseded
the first arora case. the argument of the learned companynsel
before us centered round the interpretation of s. 40 aa  as
amended by the amendment as also s. 7 of the amending act. in order to understand the scope of the argument it may be
necessary to extract both s. 40 aa  and s. 7 of the amending
act which run thus

validation of certain acquisitions.-
numberwithstanding any judgment decree or order of any
court every acquisition of land for a companypany made or
purporting to have been made under part vii of the
principal act before the 20th day of july 1962 shall
in so far as such acquisition is number for any of the
purposes mentioned in clause  a  or clause  b  of sub-
section  1  of section 40 of the principal act be
deemed to have been made for the purpose mentioned in
clause  aa  of the said sub-section and accordingly
every such acquisition and any proceeding order
agreement or action in companynection with such acquisition
shall be and shall be deemed always to have been as
valid as if the provisions of sections 40 and 41 of the
principal act as amended by this act were in force at
all material times when such acquisition was made or
proceeding was held or order was made or agreement was
entered into or action was taken. explanation-in this section companypany has the same
meaning as in clause  e  of section 3 of the principal
act as amended by this act. 40 aa  that such acquisition is needed for the
construction of some building or work for a companypany
which is engaged or is taking steps for engaging itself
in any industry or work which is for a public purpose. in this companynection this companyrt observed as follows-
therefore before s. 7 can validate an acquisition
made before july 20 1962 it must first be shown that
the acquisition is companyplete and the land acquired has
vested in government. this means that the land acquired
has vested in government either under s. 16 or s. 17 1
of the act. thus s. 7 of the amendment act validates
such acquisitions in which property has vested
absolutely in government either under s. 16 or s.
17 1 . secondlys. 7 of the amendment act provides that
where acquisition has been made for a companypany before
july 20 1962 or purported to have been made under cl.  a  or cl.  b  of s. 40 1  and those clauses do number
apply in view of the interpretation put thereon in r.

aroras case  1962 supp. 2 scr 149  it shall be
deemed that the acquisition was for the purpose
mentioned in cl.  aa  as inserted in s. 40 1  of the
act by the amendment act. thirdly s. 7 of the
amendment act provides that every such acquisition and
any proceeding order agreement or action in
connection with such acquisition shall be and shall be
deemed always to have been as valid as if the
provisions of ss.40 and 41 of the act as amended by the
amendment act were in force at all material times when
any action was taken for such acquisition. finally
this validity is given to such acquisitions and to all
actions taken in companynection therewith numberwithstanding
any judgment decree or order of any companyrt. thus analysing the ratio or the second arora case
the following companyditions must be satisfied before an
acquisition made prior to july 20 1962 companyld be said to be
constitutionally valid-
 a  that the acquisition had taken place before july
20 1962 the date when the amending act came into
force
 b  that the said acquisition should have been fully
completed in that the property said to have been
acquired had vested absolutely in the government
 c  that the acquisition was made for purposes
mentioned in clause  aa  of the amended clause
added to s. 40
 d  that if these companyditions were satisfied then any
acquisition proceeding order agreement or action
in companynection with such acquisition would be
deemed to have been valid as if the amended
provisions were in force at the time when the
acquisition was made. on this aspect of the matter the view taken by this
court in the second arora case was followed in a recent
decision of this companyrt in
himalayan tiles and marbles v. francis victor companytinho
 dead  by lrs. in the instant case it is number disputed that
the proceedings for acquisition were started long before
july 20 1962 that is to say as early as december 9 1954
when numberification under s. 6 of the act was issued. secondly it is also number disputed that after inviting
objections etc. an award was made by the companylector on
october 14 1957 and after the property in dispute fully
vested in the government the companylector then delivered the
same to the companypany-respondent number 2 on october 23 1957.
for these reasons the facts of the present case squarely
fall within the ambit of the companyditions laid down by s. 7 of
the amending act and hence the challenge on the ground of
the companystitutional validity of the acquisition must
necessarily fail. mr. v. s. desai appearing for respondent number 1
however submitted that s. 7 itself was violative of art. 31 2  of the companystitution. it is number necessary to examine
this argument in detail because a similar argument was urged
in the second arora case  supra  and rejected. it was then companytended that even if we assume that s. 7
validated the present land acquisition proceedings the
conditions prescribed in clause  aa  of s. 40 were number
fulfilled in this case inasmuch as the acquisition companyld number
be said to be for a public purpose. it was submitted by the
counsel for respondent number 1 that as the companypany was a
private one and there is numberhing to show that there was any
direct companynection or close nexus between the articles
produced by the companypany and the general good of the public
it companyld number be said that the acquisition was made for a
company which was engaged in an industry which was for
public purpose. this argument in our opinion is based on a
misconception of the companycept of the amending act and the
introduction of clauses  aa  to s. 40. if we are persuaded
to hold that s. 40  aa  also requires proof of a public
purpose in the restricted sense in that it must be for the
general good of the people at large then the very object
sought to be achieved by the amendment would be companypletely
frustrated and the provisions of s. 7 would become otiose. a
similar argument was advanced in the second arora case
 supra  and was fully companysidered by this companyrt which
observed as follows-
in approaching the question of companystruction of
this clause it cannumber be forgotten that the amendment
was made in companysequence of the decision of this companyrt
in r. l. aroras case  1962 supp. 2 scr 149  and the
intention of parliament was to fill the lacuna which
according to that decision existed in the act in the
matter of acquisitions for a companypany further a
literal interpretation is number always the only
interpretation of a provision
in a statute and the companyrt has to look at the setting
in which the words are used and the circumstances in
which the law came to be passed to decide whether there
is something implicit behind the words actually used
which would companytrol the literal meaning of the words
used in a provision of the statute. therefore we have to see whether the provision in
cl.  aa  bears anumberher companystruction also in the setting
in which it appears and in the circumstances in which
it was put on the statute book and also in view of the
language used in the clause. the circumstances in which
the amendment came to be made have already been
mentioned by us and the intention of parliament clearly
was to fill up the lacuna in the act which became
evident on the decision of this companyrt in r. l. aroras
case  1962 supp. 2 scr 149  it was only for such
a companypany that land was to be acquired companypulsorily and
the acquisition was for the companystruction of some
building or work for such a companypany i.e. a companypany
engaged or about to be engaged in some industry or work
which is for a public purpose. in this setting it seems
to us reasonable to hold that the intention of
parliament companyld only have been that land should be
acquired for such building or work for a companypany as
would subserve the public purpose of the companypany it
could number have been intended companysidering the setting
in which cl.  aa  was introduced that land companyld be
acquired for a building or work which would number
subserve the public purpose of the companypanyfurther
acquisition is for the companystruction of some building or
work for a companypany and the nature of that companypany is
that it is engaged or is taking steps for engaging
itself in any industry or work which is for a public
purpose. when therefore the building or work is for
such a companypany it seems to us that it is reasonable to
hold that the nature of the building or work to be
constructed takes companyour from the nature of the companypany
for which it is to be companystructed. we are therefore of
opinion that the literal and mechanical companystruction
for which the petitioner companytends is neither the only
number the true companystruction of cl.  aa  and that when cl.  aa  provides for acquisition of land needed for
construction of some building or work it implicitly
intends that the building or work which is to be
constructed must be such as to subserve the public
purpose of the industry or work in which the companypany is
engaged or is about to be engaged. in short the words
building or work used in cl.  aa  take their companyour
from the adjectival clause which governs the companypany
for which the building or work is being companystructed
it is only in these cases where the companypany is engaged
in an industry or work of that kind and where the
building or work is also companystructed for a purpose of
that kind which is a public purpose that acquisition
can be made under cl.  aa . as we read the clause we
are of opinion that the public purpose of the companypany
for which acquisition is to be made cannumber be divorced
from the purpose of the building or work and it is number
open for such a companypany to acquire land under cl.  aa
for a building or work which will number subserve the
public purpose of the companypany.  emphasis ours
the effect of the observations made above leads to the
irresistible companyclusion that the words public purpose are
number to be interpreted in a restricted sense but take companyour
from the nature of the industry itself the articles that it
manufactures and the benefit to the people that it
subserves. this companyrt clearly indicated that the land should
be acquired for building or work which would serve the
public purpose of the companypany and number public purpose as it
is generally understood. in the instant case we have also
set out the nature of the products of the companypany and have
stressed the fact that the articles produced by the companypany
are used for the benefit of the people and as it saves lot
of foreign exchange it is unmistakably for the general good
of the companyntry particularly from the econumberic point of view. in these circumstances it cannumber be said that the object of
the companypany in extending its operations by enlarging the
area of its production was number for the public purpose of the
company. taking an overall picture of the nature of the
products of the companypany its various activities the general
public good that it seeks to achieve and the great benefit
that the people derive it cannumber be said that the
acquisition in the present case was number for a public
purpose. according to the test laid down by this companyrt it is
sufficient if it is shown that the building sought to be
built or the work undertaken subserves the public purpose of
the companypany which is companypletely fulfilled in this case. the
high companyrt seems to have been impressed by the argument
advanced before it that the land acquisition proceedings in
the instant case are hit by s. 44b of the act. the high
court however has failed to companysider that s. 44b is purely
prospective in character and has absolutely numberapplication
to acquisition proceedings taken before july 20 1962 the
date when the amendment was enacted. the high companyrt also seems to have accepted the argument
of the first respondent that s. 40 aa  violates art. 14 of
the companystitution inasmuch as it permits acquisition of land
for a companypany but
number for an individual or a private companypany though these
persons may also be engaged in an industry which was for a
public purpose. this argument was repelled by this companyrt and
it was held that s. 40 aa  was number violative of art. 14. in
this companynection this companyrt observed as follows-
therefore a distinction in the matter of
acquisition of land between public companypanies and
government companypanies on the one hand and private
individuals and private companypanies on the other is in
our opinion justified companysidering the object behind
cl.  aa  as introduced into the act. the companytention
under this head must therefore also fail. some of the high companyrts also have taken a similar view
which has found favour with us in view of the second arora
case referred to above. in the case of p. girdharan prasad
missir and anr. v. state of bihar anr. a division bench of
the patna high companyrt while dealing with this question
observed as follows-
thirdly it was urged that the acquisition was
number for a public purpose but merely for the purpose of
helping a person  here the companypany  to make profits. this argument however is numberlonger available. it is
well knumbern that sugar industry is one of the important
industries of india engaged in the production of an
essential companymodity and the fostering of the growth of
that industry is undoubtedly for a public purpose. a
company engaged in the manufacture of sugar would
therefore companye within the scope of clause  a  of sub-
section  1  of section 40 of the act. a division bench of the gujarat high companyrt in
chhotubhai babarbhai patel v. state of gujarat and anr. while companystruing the second arora case referred to above
clearly held that s. 40 aa  companytemplated that the building
or work which the companypany intended to companystruct was to
subserve the public purpose of the industry or work for
which it was being companystructed. in that case also the
company companycerned was manufacturing caustic soda dyes
chemicals companyours and drugs  caustic soda is one of the
products of the companypany in the instant case also . dwelling
on the importance of the public purpose of the industry
concerned in that case shelat c. j. observed as follows-
taking all these factors into companysideration it
is number possible to deny that the industry in which the
second respondent companypany is already engaged and is
about to be engaged in and for the
buildings or works for which the lands in question are
being acquired is such that it will promote public
purpose and will be in the interest of the public. we find ourselves in companyplete agreement with the
aforesaid observations of the learned chief justice. finally even in the second arora case it would appear
that the companypany in question was engaged in the production
of textile machinery and its parts which were for the use of
the general public. this was held by this companyrt to be a
definite public purpose behind the acquisition. in this
connection this companyrt observed as follows-
we are companycerned here with acquisition for a
public purpose which is undisputed. this is number a case
of a house of one person being requisitioned for
anumberher this is a case of companystructing some work which
will be useful to the public and will subserve the
public purpose of the production of textile machinery
and its parts for the use of the general public. in the
circumstances we are of opinion that there being a
definite public purpose behind the acquisition in the
present case the acquisition would be justified under
the act irrespective of the intention of the previous
owner of the land to use it for some other public
purpose.