PETITIONER: EPARI CHINNA KRISHNA MOORTHY, PROPRIETOR, EPARI CHINNA Vs. RESPONDENT: STATE OF ORISSA(With Connected Petition) DATE OF JUDGMENT: 12/03/1964 BENCH: GAJENDRAGADKAR, P.B. (CJ) BENCH: GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N. SHAH, J.C. AYYANGAR, N. <NAME>, S.M. CITATION: 1964 AIR 1581 1964 SCR (7) 185 CITATOR INFO : RF 1972 SC2455 (11) R 1976 SC 182 (25) MV 1985 SC 421 (73) ACT: Fundamental Rights-Notiftcation by <ORG> exempting certain articles from sales tax-Petitioner claiming exemp- tion under the notification- Validation Act coming into force Retrospective operation-Validity-Enactment, if unconstitu- tional--Orissa Sales Tax Act, 1947, , s. 6-Sales Tax Validation Act, 1961  s. 2-Constitution of India, Arts. 14,19(1)(g). HEADNOTE: The petitioner, a merchant, carrying on business in "bullion and specie" and gold and silver ornaments was a registered 'dealer' under the Orissa Sales Tax Act, 1947. The <ORG> purporting to exercise its authority under s. 6 of the said Act issued a notification on July 1, 1949 exempting certain articles from the operation of the charging section of that Act. Under the notification gold ornaments were ordered to be exempted from sales tax when the manufacturer selling them charges separately for the value of gold and the cost of manufacture. The petitioner filed his returns before the Sales-tax Officer and claimed exemption of sales-tax under the said notification. Up to June 1952, the claim for exemption was upheld. Subsequently, however, these assessments were reopened under s. 12(7) of the Act and it was claimed that the deductions made on certain sale transactions of gold ornaments were not justified and the petitioner had escaped assessment. The petitioner pleaded that lie was entitled to exemption, because he belonged to the class of manufacturers to which the notification referred. The Sales-tax Officer disallowed the petitioner's contention. The petitioner then challenged the said decision by preferring appeals, but the said appeals were also dismissed. Pending these appeals, similar assessments made in respect of other dealers including the petitioner were challenged by writ petitions before <ORG>. <ORG> upheld the petitioner's case and issued writs directing <ORG> to allow the petitioners' claim for exemption. After this judgement was pronounced, the impugned Act was passed by the legislature on August 1, 1961 and was published on September 18, 1961, containing one operative provision in s. 2 . It provided that notwithstanding anything contained in any judgement, decree or order of any court, the word 'manufacturer' occuring against item 33 in the schedule to the notification of the <ORG> dated July 28, 1947 as amended by another notification of the 1st July, 1949 shall mean and shall always be deemed to have meant a person who by his own labour works up materials into suitable forms and a person who owns or runs a manufactory for the purpose of business with respect to the articles manufactured therein. The validity of this section was challenged in the present writ petition. 186 It was urged (i) that since the exemption was granted by the State <ORG> by virtue of the Powers conferred on it by s. 6, it was not open to the legislature to take away that exemption retrospectively; (ii) that the provision in s. 2 of the impugned Act was discriminatory and as such contravened the equality before the law guaranteed by Art. 14 and (iii) that the retrospective operation of the impugned section should be struck down as unconstitutional, because it imposes an unreasonable restriction on the petitioner's fundamental right under Art. 19 (1) (g) Held: (i) What the legislature had purported to do by s. 2 of the impugned Act, was to make the intention of the notification clear. And, if the State <ORG> was given the power either to grant or withdraw the exemption, that could not possibly affect the legislature's competence to make any provision in that behalf either prospectively or retrospectively. (ii) The notification as interpreted by s. 2 of the impugned Act benefits the artisans who produce ornaments themselves and who run manufactories. That is why the main object of granting exemption can be said to be achieved by holding that ,manufacturer' means either a manufacturer properly so called or one who engages artisans to manufacture gold ornaments. In the present case the petitioners were not directly concerned with the production of ornaments, and admittedly, they did not produce the said ornaments themselves. Therefore, the persons who get the benefit of the exemption notification as a result of the provisions of s. 2 of the impugned Act cannot be said to belong to the same class as that of the petitioners. The two categories are distinct and there is no sameness or similarity between them, and if that is so, the main argument on the basis of Art. 14 does not subsist. (ii) It would be difficult to accept the argument that because the retrospective operation may operate harshly in some cases, therefore, the legislation itself is invalid. In the circumstances of the present case it would not be possible to hold that by making the provision of s. 2 of the impugned Act retrospective the legislature has imposed a restriction on the petitioner's fundamental rights under Art. 19(1) (g) which is not reasonable and is not in the interest of the general public. JUDGMENT:

ORIGINAL JURISDICTION: Writ Petition Nos. 125--135, and 233 of 1963.

Petition under Art. 32 of the Constitution of India for enforcement of Fundamental Rights.

<NAME>, <NAME>, <NAME>, <NAME>, <NAME> and <NAME>, for the petitioner (in W. P. Nos. 125-135 1963). <NAME>, Solicitor-General, <NAME> and <NAME>, for the respondents (in W. P. Nos. 125-135 / 63). <NAME>, <NAME> and <NAME> for the petitioner (in W. P. No. 233 / 1963).

<NAME>, for the respondents (in W.P. No. 233/ 63).

March 12, 1964. The Judgment of the Court was delivered by--

GAJENDRAGADKAR, C. J.-This group of 12 writ petitions raises a common question about the validity of the( Orissa Sales Tax Validation Act, 1961 (Act No. 7 of 1961) (hereinafter referred to as the Act). The facts on which the petitioners rely are similar, and so, we shall mention the facts in the first group consisting of writ petitions Nos. 125-135 of 1963. The petitioner in this group is Shri <NAME>, Proprietor, <NAME> & Sons, Berhampur, Orissa. He is a merchant who carries on business in "bullion and specie" and gold and silver ornaments at Berhampur and as such merchant, he has been registered as 'dealer' under the Orissa Sales Tax Act, 1947 (Act No. 14 of 1947). After the said Act came into force, <ORG> purporting to exercise its authority under s. 6 of the said Sales Tax Act issued a notification exempting certain articles from the operation of the charging section of that Act. Under this notification, gold ornaments were ordered to be exempted from sales-tax 'when the manufacturer selling them charges separately for the value of gold and the cost of manufacture.' This notification was issued on July 1, 1949 Durinh the course of his business, the petitioner manufactures gold ornaments by supplying the gold to the artisans and getting ornaments prepared by them under his supervision and when the ornaments are so prepared, he sells them in his shop and has been showing the value of gold and the cost of manufacture separately. That is why the petitioner alleges that he is entitled to claim the benefit of the exemption notification.

Consistently with this plea, the petitioner filed his returns before the Sales-tax Officer at Berhampur and had been claiming exemption of Sales-tax on the sales as being entitled to exemption under the said notification. Upto June, 1952, the claim for exemption made by him was upheld and the amount represented by sales of the said gold ornaments was deducted from the taxable turnover shown by the petitioner in his returns. Subsequently, however, these assessments were re-opened under s. 12(7) of the Act and it was claimed that the deductions made on certain sales transactions of gold ornaments were not justified and to that extent, the petitioner had escaped assessment. The petitioner resisted this attempt to re-open the assessment and he pleaded that he was entitled to claim exemption under the notification, because he belonged to the class of manufacturers to which the notification referred. The Sales-tax Officer, however, disallowed the petitioner's contention and proceeded to levy tax on the sales transac- tions in question. The petitioner then challenged the said decision by preferring appeals, but the said appeals were also dismissed. While the appeals were pending similar assessments made in respect of other dealers including the petitioner were challenged by them by writ petitions before <ORG>. (Nos. 151, 161, 162, 204--209 and 110 of 1957 respectively).

<ORG> of <ORG> which heard the writ petitions upheld the petitioner's case and issued appropriate writs directing <ORG> to allow the petitioner's claim for exemption 'under the notification in question. The main controversy before <ORG> was about the precise denotation of the word 'manufacturer' used in the notification. <ORG> hold that the expression manufacturer' meant the first owner of the finished products for whom it was mad(. either by his paid employee or even by independent artisans on receipt of raw materials and labour charges from him. According to this view, the petitioners before <ORG> were found to be manufacturers and as such entitled to claim exemption in respect of sale of -old ornaments made by them. This judgement was pronounced on March 13, 1959. Against this judgement the State of Orissa has filed appeals to this Court and they are numbered as Civil Appeals Nos. 92 to 94 of 1963. These appeals are till pending disposal. After <ORG> pronounced its judgement in the writ petitions to which reference has been made, the impugned Act was passed by <ORG> on August 1, 1961. This Act received the assent of the Governor on September 10, 1961, and was published on September 18, 1961. It contains one operative provision in s. 2 . Section 2 provides that notwithstanding anything contained in any judgment, decree or order of any court, the word 'manufactu- rer' occurring against item 33 in the schedule to the notification of <ORG> dated July 28, 1947 as amended by another notification of the 1st July, 1949 shall mean and shall always be deemed to have meant a, person who by his own labour works up materials into suitable forms and a person who owns or runs a manufactory for the purpose of business with respect to the articles manufactured therein. It is the validity of this section which is challenged before us by the petitioners in the present writ petitions.

It is clear that the object of s. 2 of the impugned Act is to make it clear that the legislature's intention was not, as <ORG> had held, to, include within the notification all persons who are first owners of the finished product of gold. Section 2 shows that the legislative intention was to give benefit of the said exemption only to persons who themselves work and produce gold ornaments or who run or own a manufactory for the purpose of business with respect to the articles manufactured therein. In other words, the intention of the <ORG> in issuing the notification was not to give the benefit of the exemption to traders or shop-keepers who were no more than commission agents and who did not personally, work for making gold ornaments or who did not own a manu- factory employing artisans for that purpose. If this section is valid, it is common ground that the petitioners are not entitled ,to claim the exemption. On the other hand, if this section is invalid, the petitioners would be the first owners of gold ornaments and may be entitled to claim exemption.

The first argument which has been urged before us by Mr. <NAME> is that since the exemption was granted by <ORG> by virtue of the powers conferred on it by s. 6 , it was not open to the legislature to take away that exemp- tion retrospectively. Section 4 of the parent Sales-tax Act is the charging section and s. 6 is the section which confers on <ORG> power to issue a notification exempting from the tax the sale of any goods or class of goods and likewise withdraw any such exemption subject to such conditions and exceptions as it may deem fit. The argument is, the power to grant exemption having been conferred on <ORG>, it was validly exercised by <ORG> and though the legislature may withdraw such exemption, it cannot do so retrospectively. It is obvious that if <ORG> which is the delegate of the legislature can withdraw the exemption granted by it, the legislature cannot be denied such right. But it is urged that once exemption was validly granted, the legislature cannot withdraw it retrospectively, because that would be invalidating the notification itself. We are not impressed by this argument. What the legislature has purported to do by s. 2 of the impugned Act is to make the intention of the notification clear. Section 2 in substance declares that the intention of the delegate in issuing the notification granting exemption was to confine the benefit of the said exemption only to persons who, actually produce -old ornaments or employ artisans for that purpose. We do not see how any question of legislative incompetence can come in the present discussion. And, if <ORG> was given the power either to grant or withdraw the exemption that cannot possibly affect the legislature's competency to make any provision in that behalf either prospectively or retrospectively. Therefore, there is no substance in the argument that the retrospective operation of s. 2 of the impugned Act 'is invalid.

Then Mr. <NAME> contends that this provision is discrimina tory and as such, contravenes the equality before the law, guaranteed by Art. 14. This argument is also misconceived, is not seriously disputed that the petitioners belong to the class of traders or shopkeepers who are like commission agents. They give gold to the artisans, paying the artisans their labour charges and when the ornaments are thus produced, they charge commission before they are sold to the customers. In such a case, it is not easy to understand how this class of traders can be said belong to same class of persons who produce gold ornaments themselves or run manufactories where artisans are engaged for producing them. The counter-affidavit filed on behalf of the respondent- State has also averred that the petitioners sometimes sell goods manufactured by firms outside the State of Orissa and in no case had they manufactured ornaments themselves. Whether the gold which they give to the artisans is their own or is supplied to them by customers is not a matter of any significance, because what is important in this connection is that they are not directly concerned with the production of ornaments, and admittedly, they do not produce the said ornaments themselves. Therefore, the persons who get the benefit of the exemption notification as a result of the provisions of s. 2 of the impugned Act cannot be said to belong to the same class as that of the petitioners, and if that is so, the main argument on the basis of Art. 14 does not subsist.

Besides, one of the objects of the impugned Act appears to be to make it clear that the legislature intends to benefit the goldsmiths who actually make gold ornaments and that object can be carried out only if exemption is granted to persons who keep in their continuous employment artisans who produce gold ornaments. If a person produces gold ornaments himself and if a person employs artisans to produce gold ornaments for him, they fall within the protection of the exemption. In the case of the petitioners, however, they do not keep any artisans in their continuous employment, and so, if the legislature thought it was not necessary to give them the benefit of the exemption, it cannot be said that the classification made by the legislature has no rational connection with the object intended to be achieved by it. This argument assume,,, that the petitioners belong to the same class as the persons to whom the benefit of the exemption is available. But as we have already stated, these two categories are distinct and there is no sameness or similarity between them.

It was also suggested by Mr. <NAME> that the result of the impugned provision is to deny the benefit of the exemption to the poorer classes of persons who are engaged in the business of manufacturing gold ornaments, and in that con- nection, he has commented on the fact that the notification gives the benefit of the exemption to persons who run manu- factories but it denies that benefit to persons who carry on the work of producing gold ornaments on a smaller scale, and so, are unable to run a manufactory. This argument is fal- lacious. The notification as interpreted by s. 2 of the impugned Act benefits the artisans who produce ornaments themselves and that obviously covers a very large section of independent artisans engaged in the trade. The notification also benefits persons who run manufactories and that ensures the continuous employment of artisans. That is why it seems to us that the main object of -ranting exemption can be said to be achieved by holding that 'manufacturer, means either a, manufacturer properly so called or one who engages artisans lo manufacture gold ornaments.

Mr. <NAME> also argued that the retrospective operation ,of the impugned section should be struck down as unconsti- tutional,, because it imposes an unreasonable restriction on the petitioners' fundamental right under Art. 19(1)(g). It is true that in considering the question as to whether legislative power to pass an Act retrospectively has been reasonably ,exercised or not, it is relevant to enquire how the retrospective operation operates. But it would be difficult to accept the argument that because the retrospective operation may operate harshly in some cases, therefore, the legislation itself is invalid. Besides, in the present case, the retrospective operation does not spread over a very long period either. Incidentally, it is not clear from the record that the petitioners did not recover sales, tax from their customers when they sold the gold ornaments to them. The counter-affidavit filed by the, respondent-State alleges that even where sales-tax has not been charged separately, the price charged included sales- tax because it was the usual practice of every registered dealer ,doing similar business to collect sales-tax either by showing it as such separately and thereby claiming deduction of the, ,sales-tax from the gross turnover to arrive at the taxable turn-, ,over shown separately or by including it in the price and thereby collecting it as a part of the price charged. In any event, -we do not think that in the circumstances of this case it would be possible to hold that by making the provision of s. 2 of' the impugned Act retrospective the legislature has imposed a restriction on the petitioners' fundamental right under Art. 19(1)(g) which is not reasonable and is not in the interest of the general public.

The result is, the petitions fail and are dismissed with costs. One set of hearing fees.

Petitions dismissed.


<CITATION> . :

These are appeals by the <ORG> and the <ORG> as well as a cross objection by the <ORG>. All of them relate to the same assessment year, they are, therefore, being disposed of by this common order.

2. The Departments appeal in ITA No. 5447/Bom/88 will be taken up first.

3. Ground No. 1 is reproduced below :

"1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in restricting the disallowance under r. 6D of the IT Rules to Rs. 43,792 as against Rs. 49,450 disallowed in the assessment order."

4. We find that the matter is covered in favour of the assessee by the decision of the <ORG> in the case of <CITATION> (1983) 4 ITD 583 (Bom). This ground is accordingly allowed.

5. Ground No. 2 is reproduced below :

"On the facts and in the circumstances of the case and in law the learned CIT(A) erred in directing <ORG> to allow a sum of Rs. 13,041 being expenditure incurred on consultation and feasibility study by the assessee as revenue expenditure."

6. The Assessing Officer noticed that a sum of Rs. 13,041 was paid for consultation and feasibility study which ultimately did not materialise. He treated the same as capital expenditure relying on the decision of <ORG> in the case of <CITATION> . (1986) 53 CTR (Guj) 273 and accordingly disallowed the assessees claim for deduction. Thereafter, the CIT(A) observed that the assessee had got a computerised feasibility study which recommended that the assessee had no need for immediate in house installation of computer and certain alternatives were suggested. Thereafter, he accepted that it was for the purpose of improving the normal running of the assessees business and would be allowable as revenue expenditure. He made no reference to the case relied upon by the Assessing Officer. The <ORG> is now in appeal before us.

7. We have heard the rival submissions. Our attention has been invited to the report of computerisation feasibility study a copy of which is available in the paper book. It is seen that the principal recommendations were that there was no need for immediate in house installation of computer and it may be deferred for two years. There was immediate need for thorough systems study and setting up of a cell for this purpose. Further there was a need to advance long term strategy before going into the detailed designing work. These recommendations were made after carrying out study of the various functional areas of the assessee-company and the attributes of the information which have a bearing on the equipment configuration. Thus, we find that the study was carried out in relation to the assessees existing business and only to manage the affairs better. The facts are, therefore, distinguishable from the facts in the case of <ORG> (supra), where they were considering a study report for expansion of the business into a new line. In the facts of the present case, we accept the assessees claim that the expenditure was of a revenue nature. This ground is also rejected.

8. Ground No. 3, in reproduced below :

"On the facts and in the circumstances of the case and in law the learned CIT(A) erred in directing the Assessing Officer to allow assessees claim of write off of bad debt of sum of Rs. 1,31,607."

9. We find that the matter is covered in favour of the assessee by the decision of the <ORG> in the assessees own case for asst. yr. 1985-86 in ITA No. 9132/Bom/88 dt. 20th June, 1993 in para 7. The facts in the present case are similar. Concurring with the above decision, this ground is rejected.

10. Ground No. 4 is reproduced below :

"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the Assessing Officer to allow assessees claim of extra shift allowance in proportion of actual number of days during which the factory worked in the relevant previous year."

11. The assessee made a claim that extra shift allowance should be given at the rate of 100% of normal depreciation. Altogether the actual number of days on which manufacturing operations were carried on in three shifts was only 99 days, which is less than 240 days. It was provided in the IT Rules that for the purpose of granting extra shift allowance, the normal number of working days during the previous year shall be deemed to the number of days on which the concern actually worked during the previous year or 240 days, whichever is greater. 99 days is less than 240 days. However, the assessee claimed that the minimum number of days of 240 days stipulated in the IT Rules, should be reduced to 80 days only, since, the previous year of the assessee for this assessment year comprised of only 4 months, This claim was rejected by the Assessing Officer. The CIT(A) discussed the matter in the appellate order and thereafter, at the end gave a decision that "extra shift allowance in this case will be allowed to the appellant in proportion to the actual number of days during which the factory worked". The CIT(A) has not clarified whether the assessees appeal was being allowed or rejected on this ground, and the <ORG> has apparently filed this appeal before us as a measure of precaution.

12. After hearing both sides, we are satisfied that the assessees claim cannot be upheld and the computation by the Assessing Officer must be upheld. We uphold this view since there is no satisfactory basis for reducing the stipulated 240 days to 80 days in the IT Rules, as claimed by the assessee. We hold accordingly and allow this ground.

13. Ground No. 5 reads as under :

"On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the assessees claim of write off of bad debt of a sum of Rs. 41,700 as allowed."

14. The Assessing Officer examined details of assessees claim of bad debt totalling to Rs. 41,700. It was an admitted fact that the assessee had not taken any steps to recover this debt. However, Assessing Officer allowed individual claims where the amounts were Rs. 1,000 or lesser on the ground that benefit should be given for smaller amounts upto the above limit as held by the <ORG> in <CITATION> (1985) 11 ITD 443 (Hyd). The sum allowed by him was Rs. 10,027. The balance amount where individual sums exceeded Rs. 1,000 was disallowed by him. The CIT(A), however, allowed the entire claim with an observation that he had gone through the details but without any reference to the order of the <ORG> relied upon by the Assessing Officer.

15. We have heard the rival submission and according to the learned counsel for the assessee approach should be same as for the other amounts of bad debts totalling to Rs. 1,34,607 discussed in ground No. 3. However, we do not find any merit in this contention. In the present case no efforts were made for recovery at all and allowance had already been made for smaller amounts of Rs. 1,000 or less each totalling at Rs. 10,027 by the Assessing Officer in accordance with the <ORG> decision cited by him. We concur with the same and accordingly direct that only Rs. 10,027 should be allowed and the balance should be disallowed. This ground is accordingly treated as allowed.

16. In the result, the <ORG> appeal is partly allowed.

17. The assessees appeal in ITA No. 5001/Bom/88 will now be taken up.

18. Ground No. 1 is reproduced below :

"1. The CIT [hereinafter referred to as CIT(A)] has erred in law and on facts in confirming the disallowance under S. 40A(5) made by the <ORG> by considering :

(a) <ORG> rent allowance as forming part of salary.

(b) Entire medical expenses reimbursed to the employee as forming part of salary.

(c) 25% of the expenditure on motor car as attributable for personal use and hence, perquisite to that extent.

(d) Expenditure on repairs and maintenance of leased flats allotted to its employees as perquisite.

(e) Entire expenditure incurred on provision of gas and electricity for both official and personal use as perquisite.

(f) Entire expenditure on provision of sweepers for both official and personal use as perquisite."

19. Regarding ground No. 1(a) the learned counsel for the assessee accepted that house rent allowance paid formed apart of salary, but not to the extent to which it was exempt under S. 10(13A) of the IT Act. Reliance was placed on the decision of <ORG> in the case of <CITATION> . (1991) 187 ITR 1 (Bom) where a decision was given that gratuity in excess of the amount exempt under S. 10(10) only should be considered for disallowance under S. 40A(5) . We accept the contention. This ground is partly allowed.

20. Ground No. 1(b) is covered in favour of the <ORG> by the decision of the Special Bench of the Tribunal in the case of <CITATION> (1986) 26 TTJ (Bom) 214 (SB) : (1986) 18 ITD 226 (Bom) (SB). This ground is accordingly rejected.

21. Ground No. 1(c), (d), (e) and (f) were considered by the <ORG> in the assessees own case for asst. yr. 1983-84 in ITA No. 6 to 9/Bom/1987 dt. 29th Sept., 1992. The learned counsel for the assessee very fairly accepted that they were decided against the assessee for that year. Concurring with the same, these grounds are rejected for this year also.

22. Ground Nos. 2.1 and 2.2. are reproduced below :

"2.1 The CIT(A) has erred in law and on facts in confirming disallowance under S. 43B made by the <ORG>.

2.2 CIT(A) has erred in law and on facts in stating that appellant has already been allowed benefit for sales-tax set off, hence, no further adjustment is necessary."

23. During the hearing before us the learned counsel for the assessee submitted that to the extent sales-tax has been allowed as a deduction in the next year the claim for deduction was not being pressed. For the balance amount he submitted that deduction should be allowed in light of the decision of <ORG> in the case of <CITATION> (1991) 189 ITR 70 (Pat), wherein, it was held that proviso below S. 43B will have retrospective effect being clarificatory in nature, and similar decision of <ORG> in <CITATION> . (1991) 191 ITR 676 (Cal).

24. The learned Departmental Representative on the other hand relied on the decision of <ORG> in the case of <CITATION> (1991) 187 ITR 703 (Del), wherein it was held that the first proviso below S. 43B introduced w.e.f. 1st April, 1988 could not be given retrospective effect w.e.f. 1st April, 1984, and a similar decision of <ORG> in the case of <CITATION> (1991) 189 ITR 81 (Del). The Benches of the Tribunal at Bombay have been following the decision in the case of <ORG> (supra) and concurring with the same, we restore the matter to the Assessing Officer with the direction to consider the deduction under the first proviso to S. 43B , according to law after giving an opportunity of being heard to the assessee. However, no deduction will be allowed for the amounts of sales-tax already deducted in the next year, as conceded by the learned counsel for the assessee before us.

25. Ground No. 3.3 is reproduced below :

"3.1 - CIT(A) has erred in law and on facts in confirming disallowances made by IAC under S. 37(3A) / (3B) of the Act, thereby erred in considering :

(a) expenditure incurred on payments of restaurants as payments to hotels;

(b) expenditure incurred on payments of salaries to drivers as expenditure on running and maintenance of motor cars."

26. The only point pressed before us during the hearing by the learned counsel for the assessee was that 1/3rd of the expenses incurred on payments to restaurants were held in asst. yr. 1983-84 to be attributable to the assessees own employees and, therefore, not includible in the computation for disallowance under S. 37(3A) .

27. After hearing rival submissions, we accept this contention and direct that 1/3rd of the expenditure on restaurants may be taken outside the purview of S. 37(3A) on the basis that they were incurred on the assessees own employees.

28. The assessee has filed an additional ground of appeal according to which the CIT(A) erred in holding that repairs to vehicles ought to be considered for disallowance under S. 37(3A) of the Act. Since a legal question has been raised, the additional ground has been admitted by us.

29. After hearing the rival submissions, on merits we find merit in the contention of the assessee, which is supported by the decision of <ORG> in the case of <CITATION> . (1989) 177 ITR 124 (Bom), wherein, it was held that expenditure deductible under S. 31 is outside the purview of S. 37(3A) . We direct accordingly.

30. Ground No. 4 is reproduced below :

"The CIT(A) has erred in law and on facts in confirming disallowance made by <ORG> in respect of customs penalty of Rs. 1,20,000."

31. The Assessing Officer observed that the assessee paid customs penalty of Rs. 1,20,000 during this year, and the same was inadmissible as a deduction in the light of the decision of Madhya Pradesh High Court in the case of <CITATION> (1986) 53 CTR 445 (MP). The CIT(A) confirmed the disallowance in light of the decision of <ORG> in the case of <CITATION> (1986) 161 ITR 492 (Bom). He noticed that as per order of the Addl. Collector of <ORG> dt. 8th March, 1983, the import of goods to the extent of Rs. 2,58,484 was without proper licence and unauthorised. He, therefore, confirmed the disallowance.

32. The learned counsel for the assessee invited our attention to a copy of the order of the Addl. Collector of <ORG> dt. 8th March, 1983, according to which the CIF value of goods was Rs. 3,58,484 as against Rs. one lakh available for debit in licence produced. It was, therefore, held that importation to the extent of Rs. 2,58,484 was unauthorised. It was ordered by the Addl. Collector of <ORG> that the goods shall be confiscated. However, the importer was given an option in lieu of such confiscation of a fine of Rs. 1,20,000 under S. 125 of the <ORG> Act, 1962. The learned counsel submitted before us that the goods had been imported in good faith and it was only a matter of interpretation that they were not covered by the licence and in any case the assessee was allowed to redeem the goods in question. According to him the payment of fine of Rs. 1,20,000 was admissible deduction in view of the decision of <ORG> in the case of <CITATION> . (1968) 67 ITR 667 (Bom), which had been followed by the Bombay Bench of the Tribunal in the case of <CITATION> . by an order dt. 25th June, 1984 reported in (1985) 22 TTJ (Bom) 494 : (1984) 10 ITD 398 (Bom).

33. The learned Departmental Representative relied on the order of the CIT(A).

34. We have considered the rival submissions. In the case of <CITATION> (supra), which is an order dt. 12th Sept., 1985, <ORG> considered its earlier decision in <CITATION> . (supra) and found that the facts were altogether different. In that case in the course of its business the assessee had purchased bills of lading, etc., from certain parties in respect of import of some goods. It was found at the time of customs clearance that the imports were unauthorised and liable to be confiscated and a penalty was imposed. The assessee paid the penalty for saving the goods being confiscated. It was held by <ORG> that on the facts and circumstances, the actual cost of the goods to the assessee was not only what it had paid to the importers but in addition thereto what it had to pay by way of penalty in order to save the goods from being confiscated. However, the facts in the case of <CITATION> (supra) were that it was the assessee who had got the import licence and imported the goods and it was the fault of the assessee if the goods imported did not conform to the licence. The penalty was levied on the assessee for the default of the assessee itself, and not on the ground of any other persons default.

35. We find that the facts in the present case are similar to the facts in the case of <CITATION> (supra), and in the circumstances, we hold that the ratio of the decision had been rightly applied by the CIT(A). This ground of appeal is, therefore, rejected.

36. Ground No. 5 is reproduced below :

"The CIT(A) has erred in law and on facts in restricting the claims of bad debts only to the extent of Rs. 41,700."

37. This ground has been considered alongwith ground No. 5 of the <ORG> appeal and we have found that the order of the CIT(A) was to be modified, inasmuch as, claim of bad debts individually amounting to Rs. 1,000 only should be allowed. In the light of the same, this ground is rejected.

38. Ground Nos. 6.1 and 6.2 are reproduced below :

"6.1 - CIT(A) has erred in law and on facts in stating that the payments made to customers out of excise duty refund received from Asst. Collector are not deductible.

6.2 - CIT(A) ought to have given clear direction to the <ORG> to allow as deduction the repayment made to customers during the accounting period of four months ended 30th April, 1983 on account of excise duty received from Asstt. Collector."

39. The <ORG>(A) observed that the assessee had made claim for deduction in respect of repayment made by them during the accounting period of 4 months ended to 30th April, 1983 to the customers on account of excise duty received from the Asstt. Collector. The claim had been made, as a result of an order under S. 263 passed by the <ORG>. The <ORG>(A) observed further that the question did not arise out of the assessment order for asst. yr. 1984-85 since no such claim had been made in the course of assessment. He, therefore, declined to consider this additional ground filed before him.

40. The learned counsel for the assessee very fairly admitted before us that the order under S. 263 in question had been quashed by the <ORG> in appeal and in application under S. 256(1) had also been rejected. The issue, therefore, does not survive for consideration any more. For statistical purpose this ground is rejected.

41. In the result, assessees appeal is partly allowed.

42. We now come to C. O. No. 489/Bom/88 filed by the assessee. The only ground taken is that the CIT(A) erred in confirming the interest under S. 216 levied by the Assessing Officer. The CIT(A) observed that the assessee was not able to elaborate its stand that interest under S. 216 was excessive, the ground was, therefore, rejected. No further elaboration was made before us either. We are, therefore, unable to interfere with the order of the CIT(A) in this regard. The cross objection is rejected.


PETITIONER: STATE OF GUJARAT & ORS. Vs. RESPONDENT: AMBALAL HAIDERBHAI ETC. DATE OF JUDGMENT14/04/1976 BENCH: <NAME>, JASWANT BENCH: <NAME>, JASWANT RAY, A.N. (CJ) BEG, M. HAMEEDULLAH CITATION: 1976 AIR 2002 1976 SCR 33 1976 SCC (3) 495 CITATOR INFO : RF 1978 SC 515 (7) ACT: Land Acquisition (Companies) Rules 1963-Enquiry under R. 4 whether compliance with principles of natural justice required. HEADNOTE: The appellant initiated proceedings under the Land Acquisition Act , 1894, for acquiring the lands of the respondents for <ORG>, in order to establish an industrial estate for small scale industries. A notification was issued under s. 4 of the Act after following the provisions of Part VII of the Act, and in due course the final notification under s. 6 of the Act was issued. The respondents challenged both the notifications before <ORG>, under Art. 226 of the Constitution on the ground that at the enquiry held by the Special Land Acquisition Officer, Baroda, under R. 4 of the Land Acquisition (Companies) Rules 1963, they had not been heard in accordance with the principles of natural justice. <ORG> allowed the writ petitions. The question for decision before this <ORG> was whether the enquiry under Rule 4 requires compliance with the rules of natural justice. Dismissing the appeals, the <ORG>, ^ HELD: In conducting the enquiry, the Collector has, in the interest of fair play, to observe the principles of natural justice by affording the persons interested in the land a reasonable opportunity of being heard and of adducing material before the Collector to refute the allegations of the company. [37 <CITATION> :

<CITATION> .  1 SCR 317 and <CITATION> . 1 SCR 457 referred to.

& CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 967 to 969 of 1971.

Appeals by Special Leave from the Judgment and Order dated April 17/18, 1970 of <ORG> in Special Civil Applications Nos. 116,, 1621 and 1622 of 1967.

<NAME>, <NAME>, <NAME> for the Appellants in all the appeals.

1. N. Shroff for Respondents Rr. 1 and 2 in 967 and R 1 in CAs. 968-969.

<NAME> and Miss <NAME> for Respondent 3 in 967, R. 2 in 968, 969.

The Judgment of the Court was delivered by <NAME>, J.-These three appeals Nos. 967 to 969 of 1971 by special leave which are directed against the common judgment of <ORG> dated April 17/18, 1970 in Special Civil Application Nos. 116 of 1967, 1621 of 1967 and 1622 of 1967 arise thus:

Proceedings under the Land Acquisition Act , 1894, (hereinafter referred to as 'the Act') for acquisition of certain lands in villages Sayajipuri, Bapow and Savad, District Baroda, Taluka Baroda were initiated by <ORG> at the instance of <ORG> registered under the Gujarat Co-operative Societies Act 1961 (hereinafter referred to as 'the <ORG>') for the purpose of establishing an industrial estate for small scale industries. The acquisition being for the <ORG> a notification was issued under section 4 of the Act on July 2, 1964 after following the provisions of Part VII of the Act. An agreement under section 41 of the Act between <ORG> and the <ORG> was entered into on April 2, 1965 and was published on October 15, 1966. The final notification under section 6 of the Act was issued on October 18, 1966. The owners of the aforesaid lands who are contesting respondents herein challenged the aforesaid notifications issued under section 4 and 6 of the Act by filing petitions under Article 226 of the Constitution of India inter alia on the ground that the provisions of the Rule 4 of the Land Acquisition (Companies) Rules, 1963 (hereinafter referred to as 'the Rules') made by <ORG> in exercise of the powers conferred under section 55 of the Act, which by virtue of Rule 1(2) of the Rules apply to acquisition of land for all companies under Part VII of the Act, have not been complied with particularly as they had not been given a right to be heard in accordance with the principles of natural justice at the enquiry held by Special Land Acquisition Officer, Baroda, appellant No. 2 herein. The plea raised by the owners of land found favour with <ORG> which allowed the petitions set aside the notification under section 6 of the Act, and issued a mandamus commanding appellant No. 2 to complete the statutory enquiry under Rule 4 of the Rules in accordance with the principle of natural justice.

The short but important question which we are called upon to decide in these appeals is whether the enquiry under Rule 4 of the Rules requires compliance with the rules of natural justice.

As observed by this Court in <CITATION> .(1) and reiterated in <CITATION> .(2) rules of natural justice are not rules embodied always expressly in a statute or in rules framed thereunder. They may be implied from the nature of the duty to be performed under a statute. What particular rule of natural justice should be implied and what its content should be for a given case must depend to a great extent on the facts and circumstances of that case, the frame-work of the law under which the enquiry is held, and the constitution and nature of duties of the <ORG> or the body of persons appointed for that purpose. Let us, therefore, advert to the provisions of Rule 4 of the Rules which requires the appropriate <ORG> to be satisfied with regard to certain matters before initiating acquisition proceedings. The rule is in these terms :-

"4. Appropriate Government to be satisfied with regard to certain matters before initiating acquisition proceedings.-

(1) Whenever a Company makes an application to the appropriate Government for acquisition of any land, that Government shall direct the Collector to submit a report to it on the following matters, namely:-

(i) that the Company has made its best endeavour to find out lands in the locality suitable for the purpose of the acquisition;

(ii) that the Company has made all reasonable efforts to get such lands by negotiation with the persons interested therein on payment of reasonable price and such efforts have failed;

(iii)that the land proposed to be acquired is suitable for the purpose;

(iv) that the area of land proposed to be acquired is not excessive;

(v) that the Company is in a position to utilise the land expeditously; and

(vi) where the land proposed to be acquired is good agricultural land, that no alternative suitable site can be found so as to avoid acquisition of that land.

(2) The Collector shall, after giving the company a reasonable opportunity to make any representation in this behalf, hold an enquiry into the matters referred to in sub-rule (1) and while holding such enquiry he shall,-

(i) in any case where the land proposed to be acquired is agricultural land, consult the Senior Agricultural Officer of the district whether or not such land is good agricultural land;

(ii) determine, having regard to the provisions of sections 23 and 24 of the Act, the approximate amount of compensation likely to be payable in respect of the land which, in the opinion of the Collector, should be acquired for the Company; and

(ii) ascertain whether the Company offered a reasonable price (not being less than the compensation so determined), to the persons interested in the land proposed to be acquired.

Explanation.-For the purpose of this rule "good agricultural land" means any land which, considering the level of agricultural production and the crop pattern of the area in which it is situated, is of average or above average productivity and includes a garden or grove land.

(3) As soon as may be after holding the enquiry under sub-rule (2), the Collector shall submit a report to the appropriate Government and a copy of the same shall be forward by that Government to the Committee. (4) No declaration shall be made by the appropriate Government under section 6 of the Act unless-

(i) the appropriate Government has consulted the Committee and has considered the report submitted under this rule and the report, if any, submitted under section 5A of the Act; and

(ii) the agreement under section 41 of the Act has been executed by the Company".

To sum up, sub-rule (1) of the above quoted rule requires the appropriate <ORG> to which an application is made by a Company for acquisition of land to direct the Collector to submit a report on six matters set out therein.

Sub-rule (2) of the said rule re-emphasizes what is contained in sub-rule (1) by making it obligatory for the Collector to hold an enquiry into six matters referred to in sub-rule (1). It also makes it obligatory for the Collector while holding the enquiry (1) to consult the Senior Agricultural Officer of the District in case the land is agricultural land, (2) to determine the approximate amount of compensation likely to be payable in respect of the land in question keeping in view the provisions of sections 23 and 24 of the Act and (3) to ascertain whether the Company offered a reasonable price (which is not less than the compensation so determined) to the persons interested in the land which is proposed to be acquired.

A conjoint reading of sub-rules (1) and (2) leaves no room for doubt that the enquiry by the Collector, which is meant inter alia to find out whether all reasonable efforts have been made by the Company to get the land by negotiation on payment of reasonable price and such efforts have not fructified and to determine the approximate amount of compensation likely to be payable in respect of the land keeping in view the provisions of sections 23 and 24 of the Act, is of vital importance to the persons interested in the land.

Sub-rule (3) of the rule requires the Collector to submit his report to the concerned Government which in turn is required before making a declaration under section 6 of the Act to consider that report as well as the report, if any, submitted by it under section 5A of the Act after ascertaining the view of the <ORG> constituted under Rule 3 of the Rules in regard to the Collector's report under Rule 4 of the Rules.

Although the above mentioned rule is silent regarding the mode and method of the enquiry to be held by the Collector and the report of the Collector is of a recommendatory character, yet regard being had to the legislative history and purpose of the rule, and the mischief sought to be prevented, we have no hesitation in holding that, in conducting the enquiry, the Collector has, in the interest of fair play, to observe the principles of natural justice by affording the persons interested in the land a reasonable opportunity of being heard and of adducing material before the Collector to refute the allegations of the Company. The concept of natural justice which as evident from the observations made in <NAME> case (supra), has undergone a great deal of change in recent years. The dividing line between an administrative and quasi-judicial function is often blurred.

Our view is reinforced by the following illuminating observations made by the learned Chief Justice in <CITATION> .(1) "The contention of the State that the enquiry under rule 4 is administrative and that the owner of the land is not entitled to be given an opportunity to be heard at the enquiry cannot be accepted for these reasons. The enquiry under rule 4 shows that the Collector is to submit a report among other matters that the Company has made all reasonable efforts to get such lands by negotiation with the persons interested therein on payment of reasonable price and such efforts have failed. The persons interested therein are the owners of the land which is proposed to be acquired. The company at such an enquiry has to show that the company made negotiations with the owners of the land. The owners of the land are, therefore, entitled to be heard at such an enquiry for the purpose of proving or disproving the reasonable efforts of the company to get such land by negotiation. The contention on behalf of the State that the owners of the land will get an opportunity when an enquiry is made under section 5-A of the Act is equally unsound. Section 17 of the Act provides that the appropriate Government may direct that the provisions of section 5-A shall not apply, and if it does so direct a declaration may be made under section 6 at any time after the publication of the notification under section 4 of the Act. Therefore, the enquiry under section 5A may not be held."

For the foregoing reasons, the question is answered in the affirmative and the appeals are dismissed. The parties are left to bear and pay their own costs in these appeals.

M.R. Appeals dismissed.