PETITIONER: STATE OF ORISSA AND ORS. Vs. RESPONDENT: HARINARAYAN JAISWAL AND ORS. DATE OF JUDGMENT14/03/1972 BENCH: <NAME>, K.S. BENCH: <NAME>, K.S. REDDY, P. JAGANMOHAN CITATION: 1972 AIR 1816 1972 SCR (3) 784 1972 SCC (2) 36 CITATOR INFO : E&R 1974 SC 651 (11) R 1975 SC 380 (21,35) R 1975 SC1121 (51,53) RF 1975 SC2008 (25) R 1977 SC 722 (17,24,28) RF 1978 SC1457 (64) RF 1979 SC1628 (35,36) F 1980 SC 614 (15) D 1985 SC1147 (11) R 1987 SC 251 (29) RF 1988 SC 771 (5) RF 1990 SC1927 (5) ACT: Bihar and Orissa Excise Act, 1915 as amended upto October 6, 1970, Ss. 22 and 29--Scope of--Order made under s. 29 giving power to <ORG> to accept or reject bid without assigning any reason--violative of Arts. 14 and 19(1)(g)--Power of <ORG> to sell the privilege of selling country liquor by private negotiation--Scope of.-- HEADNOTE: The first respondent was carrying on business of selling country liquor. In exercise of the powers conferred by s. 29(2) of the Bihar and Orissa Excise Act, 1915, the appellant issued an Order and in pursuance of that Order a date was notified for selling by public auction the exclusive privilege. of selling by retail, country liquor in 8 shops. The respondent was the highest bidder but his bid was rejected because the <ORG> was of the view that inadequate prices had been offered as a result of collusion between the bidders. Thereafter, tenders were called for and the appellant accepted the tender in respect of one shop and rejected the others as it was again of the opinion that the price offered was inadequate. Thereafter, the remaining 7 shops were' sold by private negotiation for substantially higher prices. A writ petition filed by the respondent in <ORG> was allowed mainly on the ground that the power centered on the <ORG> by cl. (vi) of the Order, that no sale shall be deemed to be final unless confirmed by the <ORG> who shall be at liberty to accept or reject without assigning any reason, was an unguided power violative of Arts. 14 and 19(1) (g). Allowing the appeal to this Court, HELD : (1) Section 22 of the Act confers power on the <ORG> to grant to any person on such conditions and for such period as it may think fit the exclusive privilege of selling in retail country liquor; and s. 29 empowers the <ORG> to accept payment in consideration of the grant either by calling tenders or by auction or otherwise as it may by general order direct. The powers conferred on the <ORG> <ORG> by ss. 22 and 29 are absolute. The <ORG> cannot be said to have conferred on itself arbitrary power under cl. (vi) of its Order, passed under s. 29(2) , because, the power that the <ORG> reserved for itself under that clause is nothing more than what was conferred on it by the <ORG> under the sections. Since the validity of the sections was not challenged the validity of the Order could not also be challenged. [792 B- F] (2) Even otherwise, one of the important purposes of selling the exclusive right to sell liquor in wholesale or retail is to raise revenue; and excise 'revenue forms an important part of every <ORG>'s revenue. The <ORG> is a guardian of the finances of the <ORG> and is expected to protect its financial interests. The fact that the prices fetched by the sale of the privilege to sell country liquor is an excise revenue does not change the nature of the right in the <ORG>. Therefore, the 785 <ORG> has empowered the <ORG> to see that there is no leakage in the revenue. It was for the <ORG> to decide whether the price offered in an auction is adequate and the conclusion reached by the <ORG> does not affect anyone's rights. [793 D-F; 794 F-G] (3) Public auctions are held to get the best possible price and there is no completed contract till the bid is accepted. There is, therefore, no basis for, contending that the owner of the privileges who had offered to sell them cannot decline to accept the highest bid if he thinks that the price offered is inadequate, and, it makes no difference that the <ORG> was the seller. [793 G-H; 794 A] (4) If the <ORG> is exclusive owner of the privileges, the respondent could not rely on Art. 14 and 19(1)(g ), because, citizens cannot have any fundamental right to trade or carry on business in the properties or rights belonging to <ORG>, nor can there be any infringement of Art. 14 if <ORG> tries to get the best available price for its valuable, rights. Further there is no inherent right in a citizen to sell intoxicating liquor by retail. [793 A; 794 <CITATION> ., '  S.C.R. 873 and <CITATION> ,  2 S.C.R. 594, followed. (5) Assuming that the question of arbitrary or unguided power can be raised it should be remembered that the power to accept or reject the highest bid is given to the highest authority in the <ORG>, namely, the <ORG>, which is expected to safeguard the finances of the <ORG> and it is not a case of delegated power but of power conferred by the <ORG>. While accepting or rejecting a bid <ORG> is performing an executive function and the correctness of its conclusion is not open to Judicial review where the power is not used for any collateral purpose. [793 F-, 794 C-E] (6) The real conclusion. of the <ORG> was that the price fixed was inadequate and hence <ORG> erred in thinking that the <ORG> was bound to satisfy the Court that there was collusion between the bidders. [794 <CITATION> .  Supp. S.C.R. 311 and <CITATION> ,  1 S.C.C. 325 referred to. (7) The <ORG> was not precluded, having had recourse to the auction method once, from either calling for tender or selling by negotiations. Once the <ORG> declines to accept the highest bid or the tender price offered, the government was free to have recourse to other methods. The pow(* given to the <ORG> to sell in such other manner as it thinks fit is a very wide and unrestricted power and includes within it the power to; sell the privilege by private negotiation. [795 A-B] (8) The <ORG> is not required by s. 29 (2) (a) to make an order that the privilege will be sold by private negotiation, since, it makes no sense to require <ORG> to first make an order that it is going to negotiate. The section only says that the <ORG> <ORG> 'may by general or special order direct' and the direction contemplated is one to subordinate officials and not to itself. [795 D-F] JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2024 and 2025 of 1972.

<NAME>, <NAME>, Advocate-General for the State of Orissa, <NAME> and <NAME>, for the appellants (in both the appeals).

<NAME> and <NAME>, for respondent No. 1 (in C.A. No. 2024 of 1971).

<NAME>, for respondent No. 1 (in C.A. No. 2025 of 1971).

The Judgment of <ORG> was delivered by <NAME>, J. These appeals by certificate raise common questions of law for decision. The questions of law arising for decision can be more conveniently brought out if the material facts are first set out. It is sufficient, if we refer to the facts in Civil Appeal No. 2024 of 1971. The 1st respondent in Civil Appeal No. 2024 of 1971 is carrying on the business of selling country liquor. 'In pursuance of the order made by the State of Orissa, the Excise Commissioner notified on January 8, 1971 that the exclusive privilege of selling by retail the country liquor in the eight specified shops in the Cuttack District for the period from April 1, 1971 to March 31, 1972 will be sold by public auction on February 15, 1971 and on the following days. The auction was accordingly held on the notified day. The 1st respondent was the highest bidder for those eight shops. His bids were provisionally accepted by the Collector subject to confirmation by the <ORG>. The <ORG> rejected those bids being of the view that inadequate price had been offered as a result of collusion between the bidders. It ordered the Excise Commissioner to call for tenders in respect of those shops. After the tenders were duly received, the <ORG> accepted the tender in respect of one shop and rejected the other tenders as it was again of the opinion that the price offered was inadequate. Thereafter it sold the seven shops by negotiating with some of the tenderers. The price ultimately fetched was substantially more than that offered either at the auction or as per tenders.

Thereafter the 1st respondent moved <ORG> under Art. 226 of the Constitution for a direction to the Government to confirm his bids and cause the necessary licences to be issued to him. Various pleas were taken in support of the relief asked for. Such of them that were pressed before us will be referred to later. The Government resisted that application. <ORG> came to the conclusion that the Government had no power to refuse to confirm the bids of the highest bidders except on good grounds and the ground that had commended itself to the Government for refusing to confirm the bids were irrelevant. It also opined that the absolute power conferred on the Government to confirm or refuse to confirm the highest bids without giving any reason was an unguided power and consequent by violative of Arts. 14 and 19 (1) (g) of the Constitution. <ORG> was further of the opinion that monetary considerations were irrelevant for 'deciding the question whether the highest bid should be confirmed or not. Aggrieved by that decision, the State of Orissa has come up in appeal.

Before proceeding to pronounce on the contentions advanced at the hearing, it is convenient to set out the relevant provisions of law as well as the orders passed by the <ORG> under S. 29 of the Bihar and Orissa Excise Act, 1915 (as amended upto October 6, 1970) (to be hereinafter referred to as the Act). The preamble to the Act reads "Whereas it is expedient to amend and reenact the law in the Province of Bihar and Orissa relating to the import, export, transport, manufacture, possession, and sale of certain kinds of liquor and intoxicating drugs;

And whereas the previous sanction of the Governor-General has been obtained,, under section 5 of the Indian Councils Act, 1892, to the passing of this Act;

It is hereby enacted as follows Section 22 deals with the grant of exclusive privilege of manufacture and sale of country liquor or intoxicating drugs. To the extent it is material for our present purpose, it reads :

"<ORG> may grant to any person, on such conditions and for such period as it may think fit, the exclusive privilege-

(a).............................

(b).............................

(c).............................

(d).............................

(e) of manufacturing and supplying wholesale and selling retail, any country liquor or intoxicating drug within any specified local area :

Provided that public notice shall be given of the intention to grant any such exclusive privilege, and that any objections made by any person residing within the area affected shall be considered before an exclusive privilege is granted."

Sub-s. (2) says : "No grantee of any privilege under sub-s. (1) shall exercise the same unless or until he has received a license in that behalf from the Collector or the Excise Commissioner."

Section 29 deals with payment for grant of exclusive privilege. It reads :

"(1) Instead of or in addition to, any duty leviable under this Act, the State Government may accept payment of a sum in consideration of the grant. of any exclusive privilege under section 22 .

(2) The sum payable under sub-s. (1) shall be determined as follows :

(a) by calling tenders or by auction or otherwise as the State Government may, by general or special order direct;- and

(b) by such authority and subject to such control as may be specified in such order." Excise revenue is defined in s. 2(9) : " "Excise-revenue" means revenue derived or derivable from any duty, fee, tax, payment other than a fine imposed by <ORG> or confiscation imposed or ordered under this Act or any other law for the time being in force relating to liquor or intoxicating drugs and includes any payment to be made to <ORG> under s. 29 ."

In exercise of the powers conferred by s. 29(2) of the Act, <ORG> issued an order on January 6, 1971 directing that any sum payable under the aforesaid section for grant of the exclusive privilege of manufacturing and selling by retail of country liquor shall, unless otherwise directed by <ORG>, in any particular case or cases for any reason, 'be determined by auction to be held in accordance with the procedure specified below:

"(i) the dates and centers for the auction shall be fixed and notified by the Excise Commissioner with the prior approval of Government and the Collector shall then issue notice for auction and give wide publicity to the same in such manner as' he considers necessary, 15 days before the date fixed for commencement of the auction;

(ii) the auction shall determine the amount of monthly consideration money and shall ordinarily be conducted by the Collector and in his absence by the Additional District Magistrate; Provided that the State Government in by depute an officer from head-quarters to aid and advise the officer conducting such sales;

(iii) the officer conducting the auction may satisfy himself as to the solvency of any bidder and may not allow a person of doubtful solvency or a person to whom grant of a licence for retail sale of any intoxicant is prohibited under Orissa Excise Rules, 1965 to offer bids in the auction;

(iv) the officer conducting the auction shall be at liberty to close the auction if he is satisfied that, there has not been sufficient or fair competition in which case he may publicly adjourn the auction, to a specified hour on the following day or on' some other convenient day to be notified by him in the auction hall;

(v) the highest bid in an auction shall ordinarily be, accepted provisionally by the Collector subject to confirmation by the State Government and in case where the officer conducting the auction, refuses to accept the highest bid as offered, he shall record the reasons for such non-acceptance and shall report forthwith the same to the Excise Commissioner for further action after receipt of advances from the highest bidder;

(vi) when any bid in an auction for an exclusive privilege or privileges is provisionally accepted by the Collector, the bidder shall deposit two months' consideration money as an advance deposit which will be refunded in case the provisional acceptance is not confirmed by the State Government. No sale shall be deemed to be final unless confirmed by the State Government who shall be at liberty to accept or reject any bid without assig ning any reason therefore;

(vii) no licence for any exclusive privilege shall be granted until acceptance of the bid is confirmed by the State Government;

(viii) when any bid in an auction for any exclusive privilege is provisionally accepted but the advance deposit is not paid, the exclusive privilege shall be put to reauction as soon as possible at the risk and loss of the defaulter;

(ix) all bids in an Auction shall be offered by the bidder in person or by his agent legally authorised for the purpose."

As mentioned earlier in pursuance of the above order, the Collector held an auction in respect of the shops mentioned earlier. The highest bidder had made the necessary deposits. But. the Government did not accept his bids.

On March 7, 1971, the Government issued the following order "Whereas for determining the sums payable for the grant of exclusive privilege of manufacturing and selling by retail of country liquor auction had been held in the district of Cuttack in accordance with the procedure laid down in the order of the Government of Orissa in the Excise Department No. S.R.O. 12/71, dated the 6th January 1971;

Whereas due to collusive bids among the bidders at the said auction it is not possible to determine the said sums in the aforesaid manner;

Now, therefore, in exercise of the powers conferred by sub-section (2) of Section 29 of the Bihar and Orissa Excise Act, 1915 (Bihar and Orissa Act 2 of 1915) read with the Order No. S.R.O. 12/71, dated the 6th January, 1971, the- State Government do hereby direct that the procedure for determining the aforesaid sum in respect of the grant of exclusive privilege of manufacturing and selling by retail of country liquor in the local areas specified in the Schedules I for the year 1971-72 shall be as laid down in Schedule II hereof-

SCHEDULE I . . . . . . . SCHEDULE II

1. The sum payable under sub-section (1) of Section 29 of the said Act for grant of exclusive privilege of manufacturing and selling by retail of country liquor in the aforesaid local areas shall be determined by the Excise Commissioner by calling tenders which may be for individual local area or for lots of such area as the Excise Commissioner may consider proper;

2. Tender notice shall be issued by the Excise Com- missioner and published in <ORG> of his office <ORG> and the offices of Sub Divisional Officers in that district and shall also be widely published in such manner as the Excise Commissioner considers necessary.

3. The tender notice shall, among other things,, mention that it is open to <ORG> not to accept any tender or to order for calling fresh tenders or otherwise for such reason as they deem proper in the public interest; 4 to 8...................................

9. The Excise Commissioner shall prepare a list of all the tenders received and submit the list with his recommendations of any particular tender with sufficient reasons alongwith the tender papers to <ORG> for approval. The tenderers whose tenders have been recommended for acceptance shall deposit two month's consideration money as an advance deposit which will be refunded in case their tenders are not approved by Government.

10......................................." As mentioned earlier, the Government accepted the tender in respect of only one shop and sold the exclusive privilege to sell country liquor in other shops by negotiation. Before us the writ petitioners did not challenge the validity of any of the provisions in the Act; possibly in their own interest. They are not interested in raising any contention which might vitiate the auctions held. The contentions urged on behalf of the writ petitioners have to be examined, in the background that the provisions of the Act are not contended to be invalid.

One of the contentions taken on behalf of the writ petitioners was that the power retained by the <ORG> "to accept or to reject any bid without assigning any reason therefore" in cl. (6) of the order made by the <ORG> on January 6, 1971 in exercise of its powers under s. 29(2) of the Act was an arbitrary power and therefore it is violative of Arts. 14 and 1 9 ( 1 (g). This contention has been upheld by <ORG>. It was urged on behalf of the writ petitioners that they have a fundamental right to carry on trade or business in country liquor. That right can be regulated only by imposing reasonable restrictions in the interest of the general public. Restrictions imposed by the order in question cannot be considered as reasonable restrictions in the interest of the general public. It was further urged that the power retained by the <ORG> to accept or to reject the highest bid without assigning any reason is an unguided power and hence it is violative of Art. 14. These contentions were accepted by <ORG>. To us, none of these contentions appear to be well founded. As seen earlier s. 22 of the Act confers power on the <ORG> to grant to any person on such conditions and for such period as it may think fit the exclusive privilege of selling in retail any country liquor. Section 29 empowers the <ORG> to accept payment of a sum in consideration for the grant of any exclusive privilege under s. 22 either by calling tenders or by auction or otherwise as it may by general or special order direct. The, powers conferred on the State <ORG> by s. 22 and s. 29 are absolute powers. As seen earlier, the validity of those provisions has not been challenged before us. Under s. 29(2) the <ORG> had power to dispose of any of the exclusive privileges mentioned in s. 22 either by calling for tenders or by auction or otherwise as it may by general or special order direct. That being the amplitude of the power of the <ORG>, we fail to see how the <ORG> can be said to have conferred on itself arbitrary power under clause (6) of its order made on January 6, 1971, when it provided that :

" No sale shall be deemed to be final unless confirmed by the State Government who shall be at liberty to accept or reject any bid without assigning any reason therefore."

The power that the government reserved for itself under that clause is nothing more than what was conferred on it by the legislature under s. 22 and s. 29 of the Act. It is not possible to challenge the validity of the order made without challenging the validity of s. 29 itself. It is true that this Court has ruled that the right to trade in intoxicating drugs is also a right to carry on any trade or business within the meaning of Art. 19 (1) (g) see <CITATION> (1). At the same time, it was held by this Court in <CITATION> .(2) that for determining reasonable restrictions within the meaning of Art' 19 (6) of the Constitution on the right given under cl. 19 (1) (g) regard must be had to the nature of the business and the conditions prevailing in a particular trade; State has power to prohibit trades which are illegal or immoral or injurious to the health and (1)  3 S.C.R. 50.

(2) [1954] S.C.R. 873.

welfare of the public and there is no inherent right in a citizen to sell intoxicating liquors by retail. In that case the court held that the provisions in the Excise Regulation 1 of 1915 purporting to regulate trade in liquor in all its different spheres are not invalid. It was further held in that case that the charge of licence fee by public auction is more in the nature of a tax than a licence fee though it is described as a licence fee. One of the purposes of the Regulation is to raise revenue. Revenue is collected by the grant of contracts to carry on trade in liquor and these contracts are sold by auction. The grantee is given a licence on payment of the auction price. The Regulation specially authorises this. The decision in <CITATION> and anr. (1) relied on by the writ petitioner does not bear on the point under consideration. it deals with power to grant or refuse to grant licence to trade in some ordinary commodity under Lushai Hill Distt. Regulation.

Even apart from the power conferred on the <ORG> under ss. 22 and 29, we fail to see how the power retained by the <ORG> under cl. (6) of its order dated January 6, 1971 can be considered as unconstitutional. As held by this <ORG> in <NAME> case (supra), one of the important purpose of selling the exclusive right to sell liquor in wholesale or retail is to raise revenue. Excise revenue forms an important part of every <ORG>'s revenue. The <ORG> is the guardian of the finances of the <ORG>. It is expected to protect the financial interest of the <ORG>. Hence quite naturally, the legislature has empowered the <ORG> to see that there is no leakage in its revenue. It is for the. <ORG> to decide whether the price offered in an auction sale is adequate. While accepting or rejecting a bid, it is merely performing an executive function. The correctness of its conclusion is not open to judicial review. We fail to see how the plea of contravention of Art. 19(1)(g) or Art. 14 can arise in these cases. The <ORG>'s power to sell the exclusive privileges set out in s. 22 was not denied. It was also not disputed that those privileges could be sold by public auction. Public actions are held to get the best possible price. 'Once these aspects are recognised, there appears to be, no basis for contending that the owner of the privileges in question who had offered to sell them cannot decline to accept the highest bid if he thinks that the price offered is inadequate.- There is no concluded contract till the bid is accepted. Before there was a concluded contract, it was open to the bidders to withdraw their bids- <CITATION> (2) . By merely giving bids, the bidders had not acquired any vested rights. The fact that the <ORG> was the seller (1)  1 S.C.R. 1012.

(2) [1970] 2 S.C.R. 594.

does not change legal position once its exclusive right to deal with those privileges is conceded. If the <ORG> is the exclusive owner of those privileges, reliance on Art. 19(1)(g) or Art. 14 becomes irrelevant. Citizens cannot have any fundamental right to trade or carry on business in the properties or rights belonging to the <ORG>, nor can there be any infringement of Art. 14 , if the <ORG> tries to get the best available price for its valuable rights. <ORG> was wholly wrong in thinking that purpose of ss. 22 and 29 of the Act was not to raise revenue. Raising revenue as held by this Court in <NAME> case (supra) was one of the important purposes of such provisions. The fact that the price fetched by the sale of country liquor is an excise revenue does not change the nature of the right. The sale in question is but a mode of raising revenue. Assuming that the question of arbitrary or unguided power can arise in a case of this nature, it should not be forgotten that the power to accept or reject the highest bid is given to the highest authority in the State i.e. the <ORG> which is expected to safeguard the finances of the State. Such a power cannot be considered as an arbitrary power. If that power is exercised for any collateral purposes, the exercise of the power will be struck down. It may also be remembered that herein we are not dealing with a delegated power but with a power conferred by the legislature.

<ORG> erroneously thought that the <ORG> was bound to satisfy the <ORG> that there was collusion between the bidders. <ORG> was not sitting on appeal against the order made by the <ORG>. The inference of the <ORG> that there was a collusion among the bidders may be right or wrong. But that was not open to judicial review so long as it is not proved that it was a make- believe one. The real opinion formed by the <ORG> was that the price fetched was not adequate. That conclusion is taken on the basis of <ORG> expectations. The conclusion reached by the. <ORG> does not affect any one's rights. Hence, in our opinion the High <ORG> misapplied the ratio of the decision of this <ORG> in <ORG> and anr. v. <ORG> and ors.(1) and <CITATION> (2) . It was next urged that having had recourse to the auction method once, the <ORG> was precluded from either calling for tenders or to sell by negotiation. <ORG> has accepted that contention. We are unable to agree with the High <ORG> in its conclusion. Neither the provisions of the Act nor the order issued by the <ORG> lend any support to such a conclusion.

(1) [1969] S.C.R. 311 (2) [1969] 1 S.C.C. 325.

Once the <ORG> declines to accept the highest bid, the auction held became useless. Similar is the effect when the <ORG> refused to accept the highest tender. That left the <ORG> free to have recourse to other methods. The power given to the <ORG> by the Act to sell the exclusive privilege in such other manner as it thinks fit is a very wide power. That power is unrestricted. It undoubtedly includes the power to sell the privileges in question by private negotiation.

It was urged that before adopting the method of selling the privileges by private negotiation. The <ORG> is required by S. 29 (2) (a) to make an order that the, privileges in question will be sold by private negotiation. The <ORG> has failed to make such an order. Hence the sales effected are invalid. We, are, unable to accept these contentions. In the cases of public auctions or in the case of calling for tenders, orders from the <ORG> directing its subordinates to notify or hold the auctions or call for tenders is understandable. Public auctions as well as calling for tenders are done by subordinate officials. Further due publicity is necessary in adopting those methods. <ORG> require the <ORG> to make an order that it is going to sell one or more of the privileges in question by negotiating with some one is to make a mockery of the law. If the <ORG> can enter into negotiation with any person, as we think it can, it makes no sense to require it to first make an order that it is going to negotiate with that person. We must understand a provision of law reasonably. Section 29 (2) (a) does not speak of any order. It says that "the State <ORG> may by general or special order direct". The direction contemplated by that provision is a direction to subordinate officials. It is meaningless to say that the <ORG> should direct itself. In the result these appeals are allowed and the writ petitions dismissed. No costs.

<ORG> allowed.


JUDGMENT <NAME>, J.

1. <ORG>, Hyderabad, has referred the following question for our opinion under s. 256(1) of the I.T. Act, 1961, at the instance of the <ORG> :

"Whether, on the facts and in the circumstances of the case, <ORG> was justified in holding that the amount of Rs. 14,665 received by the assessee from <ORG> in the relevant accounting period was not liable to be included in the total income assessable for the assessment year 1974-75 ?"

2. On December 31, 1968, <ORG> in <ORG> issued G.O. Ms. No. 1225, providing certain facilities and incentives to entrepreneurs wishing to set up industries in the State with a view to speed up the Industrial development of the State. This G.O. was superseded by G.O. Ms. No. 455, <ORG> dated May 3, 1971. The preamble to both the G.Os. is identical, and, therefore, it is sufficient if we notice the reasons for issuance of the said G.Os. as recited in the second G.O. It states :

"Having regard to the slow pace of industrialisation in the <ORG> particularly in the private sector and with a view to stimulating rapid industrialisation throughout the <ORG>, <ORG> had offered facilities and incentives in the <ORG> cited for new industrial under takings. Subsequently, certain issues arising out of the <ORG> or der were considered by the Officers' Committee constituted in <ORG> Ms. No. 1226, dated 31st December, 1968. At their meeting held on 16th July, 1969, certain clarifications were considered with regard to these issues. Subsequently, the Director of Industries raised further issues for clarification on certain aspects of the <ORG> cited and also of the Officers' meeting."

3. We may set out the relevant portions of the G.O. relevant for the present purpose.

"2. Keeping in view the points raised by the Director of Industries, the Government issued the following order in suppression of the orders issued in the G.O. cited, with regard to the facilitates and incentives which may be given to industrialists wishing to set up new industries as indicated below :

(a) Refund of sales tax on raw materials, machinery and finished goods, levied by <ORG> subject to a maximum of 10 % of the equity capital paid up in the case of public limited companies and the actual capital in the case of others :

Explanation. - The ceiling of 10% shall be for the whole period of five years for which this concession is available according to para. 3 and not an annual ceiling.

(b) Subsidy on power consumed for production to the extent of 10% in the case of medium and large scale industries and 12 1/2% in the case of small scale industries. The concession will not apply to cases where concessional tariffs are allowed by <ORG>.

Explanation. - 'Small Scale Industries' referred to above will include all industrial units with a capital investment of not more than Rs. 7.5 lakhs irrespectives a of the number of persons employed. Capital investment for this purpose will be invested in plant and machinery only. In calculating the value of plant and machinery the original price paid by the owner irrespective of whether the plant or machinery are new or second hand will be taken into account.

This Explanation is subject to such modifications as the Government may from time to time make.

(c) Exemption from payment of water rate on water drawn from sources not maintained at the cost of Government or any local body;

(d) Refund of water rate in respect of water drawn from a Government source or from a source maintained by any local body but returned purified to it;

(e) Liability on account of assessment of land revenue or taxes on land used for establishment of any industry, shall be limited to the amount of such taxes payable immediately before the land is so used.

(f) The following additional incentives will be allowed to new industrial units set up in the ayacut areas of Nagarjunasagar, Pochampad and K.C. Canal in the Ramagundam-Kothagudem areas and in the following eight backward districts :

(1) Nalgonda, (2) Medak, (3) Mahaboobnagar, (4) Karimnagar, (5) Warangal, (6) Anantapur, (7) Khammam, and (8) Chittor, and such other districts as may, from time to time, be notified by <ORG> as backward districts for the purpose of grant of incentives for industrialisation :

(i) Sale or lease of Government land at concessional rates; and (ii) grant of financial assistance on a priority basis by <ORG>.

Explanation. - 'Ayacut areas' mean villages, all or part of the lands of which are included in the ayacut of the irrigation project specified above.

4. The above incentives will be available to all new industrial undertaking which commenced production on or after 1st January, 1969, with investment capital (excluding working capital) not exceeding Rs. 5 cores. The incentives under items (a) to (f) in para. 2 above will be allowed in each case for a period of five years from the date of commencement of production. The concessions will also be available for subsequent expansions (50% and above) of existing capacities provided, in each case, the expansion is located in a city or town or Panchayat areas, other than that in which the existing unit is located."

5. The assessee - <ORG> - set up a factory at Patancheru in Medak District, which went into production in the year 1973. The assessee maintains its accounts according to the calendar year. It was, therefore, entitled to the benefits of the said G.O. in the calendar year 1973, which means the assessment year 1974-75. In the said accounting year, the assessee obtained refund of the following three items totaling Rs. 14,665.70 in terms of G. O. Ms. No. 455. The three items are :

Rs.

(i) Refund of sales tax on purchase of 5,839.93 machines during 1971-72 (ii) Refund of sales tax on purchases 390.79 of raw materials during the year 1971-72 (iii) Refund of sales tax paid on sale 8,423.98 of finished goods during the year 1971-72

6. The <ORG>, while making the assessment for the year 1974-75, included the said amount in the assessable income of the petition which was confirmed on appeal by the Commissioner of Income-tax (Appeals.) On further appeal, however, the <ORG> upheld the assessee's contention and held that the amount of Rs. 14,665.70, refunded to the petitioner in terms of the said G.O. "did not represent refund of sales tax" but was a development subsidy in the nature of a capital receipt. The <ORG> also held that the said amount cannot be deemed to be the income of the assessee under s. 41(1) either. Reliance was also placed upon a circular (N0.142) of <ORG> dated August 1, 1974, issued with respect to "10% central grant of subsidy scheme (1971)", in support of its conclusion. Thereupon the <ORG> asked for and obtained this reference.

7. Mr. <NAME>, the learned standing counsel for the <ORG>, contended that items Nos. 2 and 3 comprised in the said refunded amount squarely falls within the four corners of sub-s. (1) of s. 41 and must, therefore, be deemed as income of the assessee for the relevant assessment year. He contended that the <ORG> was in error in holding that the amount refunded to the assessee did not represent refund of sales tax. The counsel contended further that all the three items constitute trading receipts and are, therefore, includible under sub-s. (1) of s. 28 . According to him, the receipts are not in the nature of capital receipts in the hands of the assessee but they are receipts of a revenue nature. Counsel also contended that the circular of <ORG> has no application to the facts of the case, nor is it valid and enforceable being inconsistent with the provisions of the Act. On the other hand, Sri. <NAME>, the learned counsel for the assessee, submitted in the first instance that none of the three items comprised in the said amount constitute income as understood in the income-tax law, nor do they fall within the four corners of sub-s. (1) of s. 41 . Counsel contended that the said amount represents a voluntary contribution unrelated to the character of the assessee, that it is not a return for the capital, skill or labour employed but a bounty given by the <ORG> for the specific purpose of development of industry which the assessee is not entitled to use as he pleases. He contended further that the assessee had no right to receive the said amounts, that it was purely out of generosity that the <ORG> made the said grant in terms of the G.O. which was issued long prior to the petitioner commencing production. He also submitted that this amount has to be used specifically for the purpose of development which means for the expansion of the unit and cannot be distributed as profits nor can it be used as any other income of the assessee and, hence, is in the nature of a capital receipt.

8. Since it is stated that the decision in this case governs a large number now pending in this court, we have heard both the counsel at quite some length and we are obliged to both of them for the valuable assistance rendered to us.

9. The following questions arise for our decision :

"(1) Whether the refund of the amount of Rs. 14,665.70 in terms of G.O. Ms. No. 455 represents refund of sales tax paid by the assessee or whether it was a voluntary contribution by the <ORG> unrelated to the character of the assessee and whether the said amount constituted income in the hands of the recipient, viz., the assessee ?

(2) Whether the three items comprised in the said amount or any of them fall within the four corners of section 41(1) ?

(3) Whether the circular of <ORG> applies herein and whether it helps the assessee's case in any manner ?"

10. The first question has four aspects, viz., whether the refund of the said amount was a voluntary contribution, secondly, whether the contribution was unrelated to the character and business of the assessee, thirdly, whether the nature of the receipt is capital or revenue and, lastly, whether it can be called "income" in the hands of the assessee.

I. (i) G.O. Ms. No. 455 is of general application. It was not issued for the purpose of helping this particular assessee. Whoever fulfills the conditions prescribed in the said G.O. is entitled to the facilities and benefits provided by it. In other words, any person satisfying the requirements of the said G.O. was entitled to the facilities and incentives as a matter of right. If in the case of any person, the same were denied, he could well maintain a writ petition or other proceeding to compel the <ORG> to extend the said benefits to him in terms of the said G.O. It may be that there is no consideration for the benefits extended thereunder in the common law sense. But it cannot be said that it is an act of generosity on the part of the <ORG>. The <ORG> is interested in the industrial development of the <ORG>; it wants to attract industries to enhance the employment potential, economic prosperity and the income of the <ORG>. It is to attract the new entrepreneurs that the Government has come forward with the said incentives. The extension of the said benefits cannot, therefore, be likened or equated to the receipt of funds by the monastery concerned in Rev. Father Prior, <ORG> <CITATION>  30 ITR 451(Trav-Cochin). In that case, the <ORG> Monastery, a religious institution was in receipt of certain donation from foreign countries for putting up charitable institutions and for other similar purpose. The donations were being sent regularly over a considerably long period. The Department's contention was that, since the monastery was in receipt of these amounts coming in with a certain regularity over a fairly long period, the same must be treated as income of the Monastery. This view was challenged by way of a writ petition in <ORG>. Section 5(3)(iii) of the Cochin Income-tax Act, in so far as it is relevant, read as follows (at p. 471) :

"Any income of a religious or charitable institution derived from voluntary contributions and applicable solely to religious or charitable purposes."

11. <ORG> observed (p. 473) :

"The mere fact that a particular item of receipt does not come within an exemption clause does not mean that it is assessable income. The primary question is whether it is income at all...... If donations of this kind are assessable income all individuals and bodies other than religious or charitable institutions should be liable to be assessed to income-tax in respect of such income under the Cochin Income-tax Act. We do not think that it will be seriously contended that under the Indian Income-tax Act , donations received by a person for putting up a charitable institution and used for that purpose will be regarded as his income and assessed to income-tax. They are obviously of the nature of gifts and are capital receipts. They do not come within the meaning of the word 'income' as understood in the ordinary language."

12. Then <ORG> referred to the decision of <ORG> in <CITATION> .  2 Comp Cas 276 and certain other decisions and observed (p. 476) :

"...... it cannot be contended for a moment that donations received by a person from a few individual on different occasions for putting up a charitable institution and utilised for that purpose will constitute his income. The payments depends entirely on the whim of the donors. There is also no regularity or expected regularity in the payments. It is obvious that receipts of this nature do not constitute 'income' of the recipient."

13. They also observed that the receipts are of a casual and non-recurring nature and that they do not arise from the business or exercise of profession, vocation or occupation of the monastery. We are unable to see that the nature of the receipts in the <NAME> case and the nature of the receipts concerned herein is the same. In this case, as we have pointed out herein before, the assessee and for that matter any other person setting up an industry in the state of Andhra Pradesh was entitled to the facilities and incentives provided by the said G.O. as a matter of right, which, if denied he could enforce in a court of law. These receipts are also not of the same nature as were received by <CITATION>  14 ITR 561 (All). The Rani concerned in that case was the wife of the ruler of the Kalsia State and the sister of the Maharaja of Nabha State. She was receiving certain amounts towards her maintenance, etc., both from the Kalsia State from Nabha state. The controversy arose about the payment received form <ORG> state which were styled as "wardrobe allowance" and included present on certain specified days of festival in each year. Each payment was specifically budgeted for in the annual budget of the Nabha State and the payments were made consecutively over a period of twenty years. <ORG> held that there was no evidence in the case to show that the payments made by the Nabha State were attributable to any custom, usage or tradition or obligation and there was consequently no origin for the payments which could amount in its nature to a definite source so as to render each payments income and not merely a casual or annual windfall. It was accordingly held that the said payment do not constitute income in the hands of the Rani and were not assessable to income-tax. In that case, though the rani was receiving the said amounts from the Nabha State regularly, she had no right to the said amounts, which were being made out of pure generosity and which, if stopped, the Rani could not claim as a matter of right nor could she enforce the payment through a court of law.

14. Mr. <NAME>, the learned counsel for the assessee, the contended that the said G. O. could be withdrawn at any time by the <ORG> and that neither the assessee nor any other person could compel the <ORG> not to withdraw it. It is true that in para. 8 of G.O.Ms. No. 455, the <ORG> expressly stated :

"Government, however, reserve the right to withdraw at any time any or all of the concessions mentions above in relation to a class or classes of industries without assigning any reasons."

15. Yet we do not think that this would make any difference to the nature of the payments. The position would be no different if these payments were provided by a statute. A statute too can be repealed or modified or amended by a legislature at any time and no person has a right to compel the legislature not to do so. But that does not mean that so long as the stature is in operation, the person concerned does not have a right to enforce the same. Similarly, the fact that the Government reserved to itself the power to withdraw the G.O. or to amend it, does not mean that so long as the G.O. is in operation, the person concerned do not have a right to enforce the same.

16. A similar question was considered by a Bench of this court in <CITATION> . CIT  117 ITR 770. A large number of representations were made by the industrialists in this State submitting that the existing power rates charged by <ORG>, being very high compared to the other states in the country, were adversely affecting their competitive capacity and the growth and expansion of the industries in the state and that the same should be reduced. A committee appointed by the <ORG> to look into the representation recommended that the <ORG> should evolve a scheme of concessional rates for attracting new industries to the state and also to help the existing industries. Accordingly, the <ORG> issued G.O. Ms. No. 678 dated April 27, 1961. The relevant portions of the G.O. extracted in the said decision read as follows (at p. 774) :

"This committee examined, in all its aspects, the question of making available the supply of power to new industries at concessional rates as a method of stepping up the pace and range of industrial development in Andhra Pradesh. The Committee came to the conclusion that reductions in existing power rates were necessary and, therefore, steps should be taken by the <ORG> to work out a scheme of concessional rates for attracting new industries to the State.

17. As regards the methods of financing to be adopted for the grant of concessional rates, in view of the inability of <ORG> to meet the cost involved, the Committee considered that a subsidy should be granted to <ORG> by the Government to defray the loss of revenue likely to be incurred by <ORG>.

18. The Director of Industries and Commerce has reported (in his second letter read above) that the present rates of power supply in Andhra Pradesh (as compared to those obtained for the same loads in neighbouring states like Madras, Mysore and Bombay) have been a contributory cause of the unsatisfactory pae of imdustrial growth in Andhra Pradesh. He has, therfore, urged the grant of concessional rates of power supply to selected categories of medium and large industries on the following basis :

(i) Power tariff rates in Andhra Pradesh should be brought on a level with those ruling in mysore, Madras and Maharashtra for comparable loads.

(ii) Concessional power rates should be offered to the following categories of new industries :

(a) industries for which power is an important cost factor;

(b) industries which require bulk loads; and

(c) essential of catalyst industries - the establishment of which will attract other industries to this state.

(iii) Concessional power rates to be offered to new industries falling within the abovementioned categories for a period of five years in the first instance.

(iv) The cost of difference between existing negotiated power rates and proposed concessional rates (estimated at Rs. 20 to 25 lakhs over the period of the next five years) be given as a grant to <ORG> by the Government; and

(v) The applications for these concessions should be screened and sanctioned by a small committee consisting of the Secretary, <ORG> (Chairman) and secretary, <ORG>, the secretary, Public works <ORG>, the Director of Industries and Commerce, and the chief Engineer, <ORG>, with powers to add new items/industries to the approved lists under the three categories of industries mentioned above."

19. In pursuance of the said G.O., the assessee in that case, <ORG>, was sanctioned 20% concession on the existing tariff rates in respect of it second plant. When the amount representing the said concession was ought to be treated as income of the assessee, it was contended by the assessee that the same does not constitute its income and that it was an amount granted by the government and was in the nature of a windfall wholly unconnected with the business carried on by it. This was repelled by a Bench of this court in the following words (p. 776) :

"In these circumstances, it cannot be held that the amounts granted by the <ORG> was in the nature of a windfall to the assessee and that they are wholly unconnected with the business carried on by it. The assessee has to use electricity in the manufacture of cement and the subsidy given by the <ORG> has only the effect of supplying electricity at reduced rates. The assessee was entitled to the concessional rates because it had been approved by the screening Committee appointed by the <ORG> as per G.O. Ms. No. 678. If the assessee was not carrying on the business, it would not have been eligible for the said concession. The receipt of the amounts mentioned above is not of a casual and non-recurring nature. The assessee was granted the subsidy as result of G.o. Ms. 678. It is not a casual payment. Though there was no contractual obligation on the part of the government, the assessee could reasonably expect the grant of the amount for a period for which the government passed the orders. We are unable to see how it could be called a windfall or a causal receipt."

20. We are of the opinion that the principle of this decision squarely governs the present case. Just as in that case the assessee had to obtain the approval of <ORG> appointed by the <ORG> to obtain the benefits of that G.O. the assessee in this case had to, and did, obtain a certificate from the director of <ORG>, on the basis of which he became entitled to the benefits under G.O. Ms. No. 455.

21. For these reasons, we reject the contention that the refund of the said amount was purely voluntary in nature, or that it was in the nature of a windfall or a generous bounty on the part of the <ORG>. We hold that the assessee had a right to the said refund in terms of the said G.O. which he could enforce in a court of law. The G.O. was issued prior to the setting up of the industry by the petitioner and it did expect to receive the said benefits and it did receive them. The source as well as the payments were both certain and definite.

(ii) We shall now consider whether the said payments were unrelated to the character of the assessee or the business carried on by it. We think that the said payments or refunds, as the case may be, are closely and inseparably connected with the business carried on by the assessee. The benefits are available only from the date the new industrial undertaking commences production and for a period of five years therefrom. The refund or the subsidy, as it may be called, is dependent upon the industry continuing in production. Paragraph 7 of the G.O. says that if any industrial unit stops production, the concession shall be discontinued. We have also referred to the fact that in the case of a similar G.O., a Bench of this court held in <ORG> case [1979] 117 ITR 770, that the grant of subsidy is closely connected with the business carried on by the assessee. The said observation applies with equal force here. In this connection, the following passage from the judgment of <NAME> in Beynon (H. M. Inspector of taxes) v. <NAME> [1928] 14 TC 1(KB), may be usefully quoted (p. 13) :

"It is perfectly true that a voluntary payment or gift, though in itself not a profit or gain at all, may become a profit or gain in the hands of the recipient if it can be attached to an office or if it can be attached to an employment or vocation of which we have many instances. The best known instances are of course the offerings made voluntarily to ministers of religion which gives rise to many cases, that is, they become profits or gains of an office, because although they are voluntary, it is by the office which is the source of the minister's taxable income that he has been given them. So also voluntary payments made to persons exercising employments; gratuities to servants and so on, are undoubtedly, because they are servants-I do not mean to say from master to servants but to people like waiters, to put a concrete example-gratuities to people of that kind, which they get because they are carrying on a particular employment; although they have no right to ask for them, when they do get them they get them they get them as profits or gains in their employment and, therefore, they are profits or gains which are taxable. But a mere gifts is not a profit or gain at all."

22. This passage, and particularly the illustrations given therein, in our opinion, clearly bring out the true position in law. Indeed, the correctness of the same is not questioned before us. Applying the principle of the said decision, we hold that the amount in question was refunded or paid to the assessee because he had set up a new industrial undertaking and has commenced producing goods and continued in production. It is not possible to divorce the said payment from the character of the business carried on by the assessee. Reference may be made in this connection to cases holding that the income derived from sale of import entitlements, which were granted on account of export performance of the assessee, is income within the meaning of s. 28(iv) . It was held that the import entitlements were issued only because of, and by virtue of, the exports made by the assessee, they must be treated as profits of business : vide <CITATION> and <CITATION> .

(iii) In <NAME> (H. M. Inspector of Taxes) v. Pontypridd and Rhondda Joint Water Board [1946] 28 TC 261; 14 ITR (supp) 45, 47 (HL), Viscount Simon stated the following two propositions (p. 278) :

"The first proposition is that, subject to the exception hereafter mentioned, payments in the nature of a subsidy from public fund made to an undertaker to assist in carrying on the undertakers trade or business are trading receipts, that is, are to be brought into account in arriving at the balance of profits or gains under Case I of Schedule D....

The second proposition constitutes an exception. If the undertaker is a rating authority and the subsidy is the proceeds of rates imposed by it or comes from, a fund belonging to the authority, the identity of the source with the recipient prevents any question of profits arising... "

23. Only the first of the two propositions stated by Viscount <NAME> is relevant for our purposes. While the learned standing counsel for the <ORG> seeks to read the said observations as applying to all subsidies given by the state to an undertaking, Mr. <NAME> seeks to limits the same only to such subsidies as are given "to assist in carrying on the undertaker's trade or business". We are not inclined to read the said proposition in such a wide fashion as the <ORG> wants us to do. The state may give a subsidy to a person to set up a new plant. In such a case, it cannot be said that the subsidy is a trading receipt. At the same time, we must say that a subsidy to assist the business of a assessee may be given in many a manner. There are several ways of subsidising an industrial undertaken. The <ORG> may do it by supplying the raw material at a concessional rate, by giving a tax holiday, by giving a development rebate, by purchasing its goods at a rate higher than the market rate and so on. It is not possible to exhaustively lay down the several methods or manner in which the <ORG> may choose to subsidies an undertaking; but, one thing is clear in all such cases, the subsidy so given would fall within the first proposi tion of Viscount simon. However, before we express our opinion on the nature of the subsidy concerned herein, it would be appropriate to refer to a few cases cited at the Bar. Seaham Harbour Dock Company v. <NAME> (H.M. Inspector of Taxes) [1931] 16 TC 333 (HL), is a case where the grant made was for a specific purpose, viz., relieving unemployment. There, a dock company applied for financial assistance. The committee consented to sanction grants from time to time as the work progressed were paid for, equivalent to half the interest for two years (not exceeding an average rate of 51/2% per annum), on approved expansion made out of loans. Payments were made on that basis several times. The <ORG> included these payments in the profits and gains of the company and sought to tax them. When the mater came before <ORG>, Lords <NAME> held that it was not a trading receipt and that (p. 353) :

"It was a grant which was made by a government department with the idea that by its use men might be kept in employment, and it was paid to and received by <ORG> without any special allocation to any particular part of their property, either capital or revenue, and was simply to enable them to carry out the work upon which they were engaged, with the idea that by so doing people might be employed. I find myself quite unable to see that it was a trade receipt, or that it bore any resemblance to a trade receipt.'

24. Lord Atkin dealt with the mater in the following words (p. 353) :

"It appears to me that when these sums were granted and when they were received, they were received by the appropriate body not as part of their profits or gains or as a sum which went to make up the profits or gains of their trade. It is a receipt which is given for the express purpose which is named, and it has nothing to do with their trade in the sense in which you are considering the profits or gains of the trade. It appears to me, with respect, to be quite irrelevant whether the money, when received, is applied for capital purposes or is applied for revenue purposes; in neither case is the money properly said to be brought into a computation of the profits or gains of the trade."

25. Strong reliance is placed by Mr. <NAME> on this decision. He says that it is really unnecessary for this court to go into the question whether the amount received by him is capital or revenue in nature. According to him, the amount is received for a specific purpose, viz., development of the unit and that it is not open to the assessee to use the said amount as it chooses. For example, it is pointed out that it is not open to the assessee to distribute the said amount by way of dividends or to use it for meting other expenditure. Emphasis is laid upon para. 6 of G.O. Ms. 455, where it is stated :

"The subsidies, refunds and o<ORG>er financial concessions granted under <ORG>is G.O. shall be deemed to be a development grant for each unit. Therefore, in order to ensure <ORG>at <ORG>is development grant is used only for <ORG>e purpose intended, every application shall be accompanied by an affidavit to <ORG>e effect <ORG>at <ORG>e amount applied for will be wholly and solely for <ORG>e development of <ORG>e unit. Misutilisation will, apart from o<ORG>er consequences, entail loss of eligibility for <ORG>e continuance of <ORG> subsidies and o<ORG>er financial concessions for future years under <ORG>is G.O. and <ORG>e subsidies, refunds and financial concessions already granted may be summarily recovered."

26. Mr. <NAME> wants to read the words "development of the units" as expansion and therefore, says that the said refund amount cannot be treated as a revenue receipt. We are unable to read the word "development" as meaning "expansion" only. The word "develop" is defined by <ORG> as follows :

"Unfold, reveal, bring or come from latent to active or visible state; make or become fuller, more elaborate or systematic or bigger; make progress; come or bring to maturity."

27. Similarly, the meaning of "development" are :

"gradual unfolding, fuller working out, growth; evolution, wellgrown state; stage of advancement."

28. In the Compact Edition of the Oxford English Dictionary, volume I,at page 707, the following meanings are given for the word "development" :

"A gradual unfolding, a bringing into a fuller view; a fuller discovery or working out of the details of anything as a plan, a scheme, a plot of a novel.

(c) The bringing out of the latent capabilities (of anything); the fuller expansion of any principle or activity;

(4) gradual advancement through progressive stages; growth from within;... "

29. It, therefore, cannot be said that the said refunds were made only for the expansion of the unit. They were made with a view to strengthen the unit financially so that it can be run efficiently, and can become strong and grow. It is well-known that in the initial stages of any industrial unit, it has to face a number of problems, sometimes referred to as "teething problems". Very often, they are not able to avoid suffering losses in the initial years. It is for this reason that a number of benefits are given at this stage of development like tax holiday, initial depreciation on machinery and so on. The Subsidy in questions is also of such a nature and cannot be treated as one exclusively meant for expansion of the unit. The word "development" used in para 6. of the G. O. has not been defined. The said paragraph only means that the money shall not be diverted to any other unit or for any other purpose except for developing, improving and strengthening the unit concerned. In <ORG> case [1931] 16 TC 333 (HL), the subsidy was not given exclusively for the purpose of expansion of the dock, but it was given for the specific purpose of relieving unemployment, which was no part of the business or trade of the assessee. In this case, however, there is no room or basis for dissociating the subsidy from the business of the assessee, inasmuch as the subsidy is given for development of the business and not for any other unrelated purpose.

30. The learned standing counsel for the <ORG> places strong reliance upon a decision of <ORG> in <CITATION>  106 ITR 473 (Bom). We may briefly note the facts of the case.

31. During the years 1950-51 and 1951-52, there was a glut in the market for soda ash because of large imports. In spite of levying countervailing duties, the landed cost of imported soda ash was lower than the cost of production of the soda ash in the country. There were only two plants in India, manufacturing soda ash, viz., the assessee in the said case, <ORG> and <ORG> On the basis of the recommendations of <ORG>, the <ORG> resolved on February 22, 1950, to allow a subsidy of Rs. 1 per cwt. on soda ash produced by these two companies and sold on or after the said date, provided the <ORG> was satisfied that the companies actually sold the soda ash at the fair selling price recommended by <ORG>. When the assessee-company ultimately received the said subsidy, the <ORG> sought to bring the same to charge as income for the relevant assessment year. On a reference, it was held by <ORG>, following the observations in <NAME> v. Pontypridd and <ORG> [1946] 28 TC 261; 14 ITR(suppl) 45, that (p. 481 of 106 ITR) :

"... Where subsidies or grants are given by the <ORG> to assist a trader in his business, they are, generally speaking, payments of a revenue nature. They are supplementary trade receipts and not capital payments although they might be called advances or might be subject to contingency of repayment. It is clear from the recommendations of <ORG>, which were partially accepted by the <ORG> by its resolution dated February 22, 1950, that the object underlying the grant of subsidy was to enable the assessee-company and <ORG> to carry on their business of soda ash profitably... Such receipt under the tests laid down by Viscount <NAME> is clearly a revenue receipt and has to be taken into account in arriving at the income, profits and gains of the business."

32. We have already pointed out that a subsidy to assist the business of an undertaking can be given in several ways. The method adopted in <ORG> case [1977] 106 ITR 473, is one such. In the case before us too, the subsidy is given for strengthening and improving the industrial undertaking so that it can work properly and grow. This is another method. But in both cases the subsidy is given to assist the business of the undertaking. We are, therefore, of the opinion that the receipt of the said subsidy or refund, as it may be called, is of a revenue nature and cannot be called a capital receipt in the hands of the assessee.

(iv) We shall now deal with the main and primary submission of Mr. <NAME>, the learned counsel for the assessee, that the said refund cannot be treated as income at all in the hands of the assessee as the said expression is understood in the income-tax law. The contention is that the said amount is not a return for either the capital, labour or skill of the assessee and that it is a mere bounty born out of generosity of the <ORG>. We have already touched upon the latter aspect of the above contention. We shall now deal with the submission that the receipt of the said amount does not constitute income in the hands of the assessee. Counsel places strong reliance upon the following well-known passage from <CITATION> .  2 Comp Cas 276, at p. 280 :

"The object of the Indian Act is to tax 'income', a term which it does not define. It is expanded, no doubt, into 'income', profits and gains', but the expansion is more a matter of words than of substance. Income, their Lordships, think, in this Act connotes a periodical monetary return 'coming in' with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something which is often loosely spoken of as 'capital'. But capital, though possibly the source in the case of income from securities, is in most cases hardly more than an element in the process of production."

33. According to this passage, there are four essential features of income, viz., (i) it must be a return; (ii) it must be received with a certain regularity; (iii) it must come in periodically; and (iv) it must come through a definite source. Counsel contends that though the subsequent decisions of <ORG> and <ORG> have done away with the second and third requirements, the first and fourth requirements are still recognised and are considered as basic to the concept of income. The learned counsel relies upon the discussion and the reasoning contained in the decision of <ORG> in <CITATION>  106 ITR 758, in this behalf and commends the same for our acceptance.

34. <CITATION>  22 ITR 484 (SC), <ORG> has observed that the observations of <ORG> in <NAME> case  2 Comp Cas 276, with respect to the meaning of the word "income" should be read with reference to the facts of that particular case. Indeed, <ORG> had pointed out in <CITATION>  3 ITR 237 (PC), that the word "income" is not limited by the words "profits and gains" and that "anything which can properly be described as income is taxable under the Act unless expressly exempted."

35. There is another major reason why we cannot accept the proposition that the element of return is an essential ingredient of every income. If this were so, then the dicta of Viscount <NAME> in <NAME> (H. M. Inspector of Taxes) v. Pontypridd and <ORG> [1946] 28 TC 261; 14 ITR (Supp) 45 (HL), as also the decision of <ORG> in <CITATION>  106 ITR 473 (Bom), should be wrong and this is not suggested by Mr. <NAME>. Indeed, the observations of Viscount <NAME> show that even by 1946, the proposition was well established that subsidies made to an undertaker to assist him in carrying on the undertaker's trade or business are revenue receipts. Now, it cannot be suggested that a subsidy made by the <ORG> to an industrial undertaking is in the nature of a return for the capital, labour or skill employed in the industry. The subsidy can, by no stretch of imagination, be treated as a return for the investment made by the entrepreneur. For example, the grant made by the <ORG> to <ORG> cannot, by any test, be called a return for the management, labour, skill or investment made by the industrial under-taking. But yet such subsidies have been held to be incom. We are, therefore, unable to agree with Mr. Y. V. <NAME> that unless a receipt is in the nature of a "return", it cannot be treated as income, nor would we try to define the expression "income" which the <ORG> has itself advisedly refrained from doing. For these reasons, we respectfully disagree with the judgment of <ORG> in <CITATION>  106 ITR 758 (Bom), in so far as the learned judges say that, for constituting income, the receipt must necessarily be in the nature of a "return" for the labour, and/or skill bestowed and/or capital invested by him. For this reason, we also think it unnecessary to refer to the various cases considered by <ORG> in <ORG> case. Suffice it to observe that no other case has been brought to our notice which lays down that for a receipt to constitute income, it must necessarily be in the nature of return.

36. Now, looked at from the above standpoint, it would follow that items Nos. 2 and 3 comprised in the amount concerned herein undoubtedly constitute income in the hands of the assessee. So far as item No. 1 is concerned, it is no doubt a refund of sales tax on purchase of machines and the amount spent for purchase of machines is undoubtedly in the nature of a capital receipt. But it must be remembered that the refund is being made after the undertaking has commenced production and with a view to facilitate the development of the unit. It is not a subsidy given for setting up the plant, but subsidy given for efficient and profitable running of industry and its growth. We, accordingly, hold that all the three items constitute the income of the assessee chargeable under s. 28 of the Act.

37. In this view of the matter, it is not necessary for us to consider whether the amount refunded represented refund of sales tax paid by the assessee or whether it is a contribution and grant made by the <ORG> adopting the basis of sales tax only as a measure. Once we hold that the subsidy constitutes income in the hands of the assessee, the said distinction, if any, becomes merely academic.

(II). The next question is whether the three items comprised in the said refunded amount or any of them fall within the four corners of s. 41(1) . Section 41 (1) of the I.T. Act reads as follows :

"41. (1) where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and, accordingly, chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not."

38. The contention of the learned standing counsel for the <ORG> is that items Nos. 2 and 3 comprised in the said amount do definitely fall within s. 41(1) inasmuch as, admittedly, these two items were claimed as deduction in the previous assessment years and were now refunded to the assessee concerned herein. So far as the first item is concerned, it was not claimed or allowed as a deduction and, therefore, it is conceded, it stands on a different footing. On the other hand, the contention of Mr. <NAME>, the learned counsel for the assessee, is that for s. 41(1) to apply, the refund of sales tax must be as sales tax. He submits that s. 41(1) contemplates a case where sales tax may have been refunded in a subsequent assessment year as a result of appeal, revision or other proceeding. Mr. <NAME> submits that in this case the assessee's liability to sales tax was neither altered nor rescinded. In this behalf, he also submits that the amount refunded to the assessee was not paid by the sales tax department nor from the sales tax account of the state but from a different head of account altogether. It is pointed out that the amount paid to the assessee was debitable to "35-Industries-C. Grants in aid-Contribution-schemes included in the IV Five Year Plan-XIV-B Grants towards Incentives to Industries."

39. We are unable to agree with the contention of Mr. <NAME>. There are no words in sub-s. (1) of s. 41 which support such a contention. Sub-s. (1) is couched in very wide terms. It says that if the assessee had obtained "any amount in respect of such loss or expenditure or some benefit in respect of such trading liability, by way of remission or cessation thereof", the amount so obtained shall be deemed to be profits and gains of his business. The words "any amounts" and "in respect of" need to be noticed. In view of this language, it is not possible to agree with Mr. <NAME> that unless sales tax paid by the assessee was refunded as sales tax and/or as a result of the proceedings under the said Act, the refund cannot be deemed to be income within the meaning of 41(1). We see no reasons not to give full effect to the fiction enacted by s. 41(1) . This is also the decision of this court in <ORG> case , the facts of which we have referred to hereinbefore. It was observed (at p. 777) :

"In the present case, the assessee had paid the electricity charges at the original rate in full and claimed an allowance in respect of the said expenditure. In pursuance of the policy of the <ORG> to supply electricity at a concessional rate of 20% less, the above amounts were paid to the assessee towards the expenditure incurred by him in regard to electricity charges and hence they should be deemed to be profits and gains of the business. All the requirements of s. 41(1) of the I.T. Act have been fulfilled."

40. It must be noticed that even in <ORG> case [1979] 117 ITR 770, the subsidy was given not by <ORG> but by the Government and yet it was held that the subsidy made by the Government falls within s. 41(1) .

41. Mr. <NAME> then argued that what is refunded is not sales tax but a subsidy measured in terms of the sales tax paid. This is again an argument which is merely academic. Section 41(1) creates a fiction; what is not income in the ordinary sense of the term is deemed to be income under this provision. Once the amount received by the assessee falls within the four corners of s. 41(1) , it is immaterial under what name the amount is received. Mr. <NAME> relied upon <CITATION> to contend that the measure and method of payment is not decisive of the character of the receipt. That was a case where the tea estate including certain factories and buildings were requisitioned for defence purposes by the military authorities. Though the possession of the assessee was not disturbed, the manufacture of tea was stopped completely. For the years 1944 and 1945, the assessee was paid compensation under the Defence of India Rules calculated on the basis of the out-tern of tea that would have been manufactured by the assessee during the said years. The question arose whether the amounts of compensation so received were revenue receipts taxable in the hands of the assessee. It was held by <ORG> that (p. 397) :

"It is the quality of the payment that is decisive of the character of the payment and not the method of the payment or it measure, and makes it fall within capital or revenue."

42. Then they considered the character of the payment in that case with reference of the principles emerging from decide case and held that because the business of the assessee, viz., production of tea was stopped altogether and business being carried on by it was discontinued, the amounts received cannot be treated as income from trade or business notwithstanding the fact that payment was made to compensate the assessee and the measure was the out-turn of tea which would have been manufactured by the assessee but for the intervention of the state. It was emphasised that it was not a case in which the business continued; in such a case, it was observed that the amount paid could be treated as one conceived to bring up the profits to normal level. We are unable to see how the principle of the said decision applies here. The ratio of <ORG> decision is : once the business of the assessee was completely stopped, the amount received cannot be treated as its income from business, notwithstanding the method or manner of payment. This is also the principle of the decision in <NAME> v. Executors of Boner Maurice [1929] 14 TC 580 (CA). In this case, a British subject who held certain securities, etc., in Germany, received at the end of the war-he having died meanwhile, his executors received the amounts-certain amounts by way of compensation in terms of the Peace Treaty. The compensation paid was calculated in terms of the interest the said securities would have earned in the normal course. (During the war years, the interest was not remitted). <ORG> held that what was received was compensation in terms of the Peace Treaty, and not interest and, hence, not taxable, notwithstanding the fact that the measure adopted for determining the quantum of compensation was the interest that would have accrued.

43. The next case relied upon is <CITATION> , wherein it was held that interim payments under s. 50(2) of the Madras Estates (Aboolition and Conversion into Ryotwari) Act, 1948, received every year by a former holder of an estate during the period between the taking over of the estate and final determination and deposit of compensation under the Act, are of a capital nature and not liable to income-tax. Firstly, this case does not arise under, nor does it consider, s. 41(1) . Secondly, the nature of the payments fell to be determined in the light of the provision of the Madras Act under which the payments were made. We may point out that, in another case arising under the Hyderabad Jagir Abolition Regulations, in <CITATION> , <ORG> held that the interim payments received constitute income. Be that as it may, the cases cited by Mr. <NAME> do not deal with, and were not decided with reference to, s. 41(1) and, therefore, are of no help to him in this behalf.

44. We are, therefore, of the opinion that items Nos. 2 and 3 comprised in the said amount do squarely fall within s. 41(1) and must be treated as gains of business.

45. III. Lastly, Mr. <NAME> relied upon circular No. 142 of <ORG>, dated August 1, 1974. The circular is found printed at p. 151 of the statutes section in [1974] 95 ITR. It reads as follows :

"Subject : Taxability of subsidy - Revenue receipt or capital receipt '10 percent. Central outright grant or subsidy Scheme, 1971' -Clarification- Regarding.

46. The Board had occasion to consider whether the amount of subsidy received under 10% Central Outright Grant of Subsidy Scheme for industrial units to be set up in certain selected backward districts/areas would constitute revenue receipt or capital receipt in the hands of the recipient for the purpose of income-tax.

2. I am directed to say that the payment of subsidy under the scheme is primarily given for helping the growth of industries and not for supplementing their profits. Under the scheme, the quantum of subsidy is determined with reference to the fixed capital and not the profits. The working capital has been specifically excluded from the computation of fixed capital for this purpose. One of the conditions for the grant of the subsidy is that the undertaking must remain in production at least for a period of five years after it goes into production. Since the subsidy is intended to be a contribution towards capital outlay of the industrial unit, the Board are advised that such subsidy can be regarded as being in the nature of capital receipt in the hands of the recipient.

3. Contents of this Circular may kindly be bought to the notice of all the officers working in your charge.

(Sd.) <NAME>, Secretary, <ORG>, (F. No. 204/25/74-ITA-II)."

47. A perusal of the circular makes it clear that it was issued with respect to a particular scheme, viz., 10% Central Outright Grant of Subsidy Scheme of 1971. It is not a circular applicable to all types of subsidy schemes. This much is conceded by Mr. <NAME> also. But what he argues is that inasmuch as our scheme is in the same terms as the Central Scheme of 1971, the principle of the said circular should be applied. We are unable to accede to this contention. We cannot extend the scope of the circular by analogy. Secondly, on a perusal of the Central Scheme of 1971 we find that the scheme concerned therin was not in the same terms as the <ORG> Scheme with which we are concerned herein. The subsidy under the Central Scheme was available only to the industrial units with a capital of less than fifty lakhs whereas the <ORG> scheme is applicable to units with a capital up to five cores. The circular was applicable only to those industrial units which were located throughout the <ORG>. To those industries which are located in the specified districts/areas called "selected districts/areas" where as the <ORG> scheme is applicable to industries locsted throughout the state. To those industries which are located in the specified backward districts, certain additional incentives are provided under the <ORG> scheme. paras 5 to 7 of the Central Scheme would show that it prescribed a particular procedure which had to be followed by the industrial units for availing of the benefits thereunder which is at variance with the procedure prescribed under the state scheme. Moreover, the Central Scheme did not provide for refund of sales tax or other taxes and charges paid but provide for an outright grant to the extent of 10% of the estimated fixed capital investment. We are therefore, of the opinion that the said circular is absolutely of no help to the assessee herein.

48. We may incidentally refer to another controversy raised though not fully debated before us. It was contended that the circular issued by <ORG> is binding upon the assessing authorities and has also got to be followed by the courts, notwithstanding the fact that the said circular may run counter to the provisions of the Act.

49. The power to issue circulars by <ORG> is derived from s. 119(1) of the Aact, which reads as follows :

"The <ORG> may, from, time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the <ORG> :

50. Provided that no such orders, instructions or directions shall be issued -

(a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or

(b) so as to interfere with the discretion of the Appellate Assistant Commissioner or the Commissioner (Appeals) in the exercise of his appellate functions"

51. The power is conferred upon the <ORG> "for the proper administration of this Act" and it would follow that this power has to be exercised consistent with and within the four corners of the Act. In other words, the <ORG> is given the power to fill in the details or to prescribe procedures where the Act and the Rules are silent. But the said power can never be constructed as one enabling the <ORG> to issue circulars overriding, modifying or in effect amending the provisions of the act. Mr. <NAME> argues that the circulars which are favourable to the assessees are binding but not those which are against the interests of the assessees. Again we are unable to discern any principle behind such a distinction. The power conferred by the <ORG> by s. 119 cannot be put on a higher footing than the rule making power and it is well-settled that the rule-making authority cannot travel beyond the four corners of the Act, nor can it makes authority cannot travel beyond the four corners of the Act, nor can it make a rule contrary to the provisions of the Act. Indeed in <CITATION> , the provision empowering <ORG> to remove doubts or difficulties in giving effect to the provisions of the Act was struck down as amounting to delegation of the legislative power to executive authority which is impermissible. However, Mr. <NAME> has brought to our notice a decision of <ORG> in <CITATION>  82 ITR 913, where at page 921, <ORG> observed as follows :

"Now, coming to the question as to the effect of instructions issued under section 5(8) of the Act, this court observed in <CITATION> , :

'It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under section 5(8) of the Act. This circular pointed out to all the officers that it was likely that some of the companies might have advanced loans to their shareholders as a result of genuine transactions of loans, and the idea was not to affect such transactions and not to bring them within the mischief of the new provision.' The directions given in that circular clearly deviated from the provisions of the Act, yet this court held that the circular was binding on the Income-tax Officer."

52. On the basis of the last sentence in the above passage, Mr. <NAME> contends that even though a circular of <ORG> runs counter to the provisions of the Act, still it has to be followed and applied. We are unable to give effect to such extreme contention, which, in our opinion, does not flow from the decision of <ORG>. Indeed, <ORG> in <CITATION>  102 ITR 622, has also held that the said decision cannot be understood as suggested by the learned counsel. Mr. <NAME> brought to out notice certain other decisions as supporting his contention. But we do not think it necessary to go into this question at any depth, since it is not necessary for the purpose of the present case. We only wish to indicate our dissent from the extreme proposition advanced by the learned counsel for the assessee, which is supported neither by principle nor by any authority.

53. Lastly, Mr. <NAME> urged upon us the following consideration. He said that if we hold that the subsidy concerned herein constitutes income and is, accordingly, includible in the assessable income of the assessee, more than half of it would be taken away by the <ORG> in the shape of taxes and that this may have never been the intention of the state while extending this subsidy. Firstly, the subsidy is given by the <ORG> Government while the income-tax is levied by a statute made by <ORG>. Secondly, in construing a taxing statute, we are expected to go strictly by the letter of law and are not to be swayed by considerations, viz., whether the assessee is suffering hardship or that he is getting away with a bonanza. The language of the enactment is the guide to its intention and in view of the well-established proposition that subsidy given to an undertaking to assist or improve its business constitutes income of such an undertaking, we have no other option but to hold that the amount concerned herein does constitute income in the hands of the assessee for the relevant assessment year and has to be assessed as such.

54. The question referred to us is, accordingly, answered in the following terms :

On the facts and in the circumstances of the case, the amount of Rs. 14,655 received by the assessee from <ORG> for the relevant accounting period was liable to be included in the total income assessable for the assessment year 1974-75.

55. We answer the reference in favour of the <ORG>.