<NAME>, Accountant Member

1. This Special Bench was constituted to consider the question whether provisions of Section 40A(8) of the Income-tax Act, 1961 ('the Act') are applicable to assessment year 1976-77, irrespective of previous year followed by the assessee. A Bombay Bench had expressed the opinion that it would, while a Madras Bench had held that Section 40A(8) would apply only to expenditure on interest incurred after 1-4-1976.

2. The assessee-company manufactures Pharmaceuticals, drugs and milk products. Its accounting year ended on 30-6-1975 which is relevant for the assessment year 1976-77 (year under consideration). The <ORG> had disallowed under Section 40A(8) Rs. 3,11,040. The only discussion in the assessment order as per paragraph 10 is that (assessee) has correctly shown disallowance at the rate of 15 per cent of Rs. 20,73,598 (out of interest paid) amounting to Rs. 3,22,040. Before the Commissioner (Appeals), the assessee raised an additional ground challenging the disallowance under Section 40A(8) on the ground that Section 40A(8) , having been introduced with effect from 1-4-1976, would, therefore, be applicable to expenditure incurred on payment of interest on deposits from that date and not to interest paid prior to that date and as the assessee's previous year relating to the assessment year 1976-77 ended on 30-6-1975, provisions of Section 40A(8) were inapplicable to this year. The assessee relied on the Tribunal <ORG>ras Bench 'D' decision in A.P.P. Ltd. [IT Appeal No. 952 (<ORG>.) of 1980] for the assessment year 1976-77. The Commissioner (Appeals), without discussing the matter, rejected the assessee's contention and confirmed the <ORG>'s order.

3. At the hearing before us, the learned counsel for the assessee again relied on the aforesaid decision of the Tribunal Madras Bench 'D' and emphasized that provisions of Section 40A(8) operate only in respect of expenditure on interest incurred after 1-4-1976. In the <ORG> case, the accounting year ended on 30-4-1975, while in the case before us the accounting year ended on 30-6-1975. It was thus urged that the <ORG> decision squarely applied in the assessee's case.

4. The learned departmental representative urged that Section 40A(8) had been introduced by the Finance Bill, 1975 with effect from 1-4-1976-  98 ITR (St.) 129. He also referred to memorandum explaining the provisions of the Finance Bill, 1975 at  98 ITR (St.) 184 (paragraphs 9-11) where it was indicated that 'the proposed amendment will take effect from 1st April, 1976 and will accordingly apply in relation to the assessment year 1976-77 and subsequent years'. Similar were the observations under 'Notes on clauses' in  98 ITR (St.) 168. It was emphasized by the departmental representative that there was nothing in the aforesaid amendment or the Notes on clauses or in the memorandum to suggest that previous year had any relevance and that it was clear that disallowance of 15 per cent of the interest was to be made out of expenditure on interest incurred in the assessment year 1976-77 irrespective of different previous years followed by the diverse assessees. It was further urged that it was an elementary principle of income-tax law that the law to be applied is that in force in the assessment year and it is immaterial what previous year the assessee follows. It was urged that any amendment which is in force at the beginning of the relevant assessment year must govern the case after the income under assessment is earned. It was also urged that the <ORG> had given one year's advance notice of the applicability of the new provision [ Section 40A(8) ].

5. The revenue's case is supported by good authority. Kanga & Palkhivala in Law & Practice of Income-tax, Seventh edn., Vol. 1 at p. 83 under the head 'Law to be applied is that in force in assessment year' observed : "Though the subject of the charge is the income of the previous year, the law to be applied is that in force in the assessment year, unless otherwise stated or implied." These observations are based on <CITATION> 1.1951] 20 ITR 572, 577 (SC) and M.KR. Deivanayagam Pillai v. Second Addl. ITO  35 ITR 549, 551 (Mad.). The learned commentators further observed : "Any amendment which is in force at the beginning of the relevant assessment year must govern the case though the amendment is made after the income under assessment is earned. In other words, the Income-tax Act as it stands amended on the 1st April of a financial year must apply to the assessment for that year." These observations are again based on a number of decisions given in footnotes 12-13 on the same page. We will refer to these decisions later.

6. Similar are the observations by <NAME> in Law of Income-tax, Seventh edn., Vol. 1 at pages 450-451 under the head "14. Levy of charge according to the provisions of the Income-tax Act as they stand on the first day of April each year." The learned commentator, relying on <ORG> case (supra) observed that <ORG> pointed out that "It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. But, it has been held, the subject of charge is not the income of the year of assessment, but the income of the previous year. As the Finance Act s come into force on the first day of April each year, therefore, the law to apply is the law in force at the commencement of the year of assessment, i.e., the first day of April each year." The commentator relied on <CITATION>  13 ITR 221 (PC) as also on <NAME> case (supra). The commentator further observed in the same para : "Thus, as a charge on the income of the previous year, the substantive law of that year must be applied." The commentator relied on <CITATION>  111 ITR 525 (Cal.). The commentator further observed that "applying the above rule, <ORG> in <CITATION> .  42 ITR 589 declined to allow retrospective operation to be given to fourth proviso to Section 10(2)(vii) inserted by the Income-tax (Amendment) Act , 1946 which had been brought into force on 5-5-1946".

7. Similar are the observations of <NAME> and <NAME> in Income-tax Law, Third edn., Vol. 1 at p. 193 under the head 'Law applicable to income-tax assessments'. These commentators have also relied on a number of decisions.

8. <ORG> in <ORG> case (supra) at p. 577 clearly observed : "The first question to be answered is whether these dates [1-4-1940 when amendment to Section 10(2)(vii) of the Indian Income-tax Act, 1922 took effect and 1-4-1939 mentioned in the amended proviso] are to apply to the accounting year or the year of assessment. They must be held to apply to the assessment year, because in income-tax matters, the law to be applied is the law in force in the assessment year unless otherwise stated or implied,"

9. Earlier, <ORG> in Maharajah of Pithapuram's case (supra) observed that under the express terms of Section 3 of the Indian Income-tax Act, 1922 ('the 1922 Act') the subject of charge is not the income of the year of assessment but the income of the previous year. In that case, Section 16(1)(c) of the 1922 Act, which was amended by the Income-tax (Amendment) Act , 1939, was held to apply to the assessment year 1939-40 although the subject of charge was the income of the accounting year 1938-39. Section 16(1)(c) applied to revocable transfers of assets- whether they were effected before or after the commencement of the Income-tax (Amendment) Act . The assessee by certain deeds of trust and settlement dated 5-4-1933 had settled properties on his daughters with a provision reserving to himself powers to revoke the settlements and the question was whether for the assessment year 1939-40, the income of accounting year 1938-39 derived from such assets was assessable under Section 16(1)(c) and the assessee urged that only transfers effected after 1-4-1939 were hit by Section 16(1)(c) but <ORG> repelled that contention and held that the law as amended would apply to the assessee.

10. To the same effect is the decision of <ORG> in CIT v. <ORG> [1940] 8 ITR 467 where it was held that law and statutory rules applicable for determining an assessment are the law and statutory rules in force for the year of assessment and not those which were in force during the (accounting) year the income of which is sought to be assessed. Thus, for the assessment year 1936-37, the <ORG> notifications of 2-11-1935 and 4-4-1936, limiting the exemption of interest on securities purchased through the post offices was applicable though the income assessable was for the accounting year ending 31-3-1936.

11. <CITATION>  9 ITR 137 (Pat.), the question was whether the provisions of Section 16(3)(a)(iii) inserted by Section 2 of the Income-tax (Amendment) Act, 1937 applied to the assessment year 1937-38 in respect of income from assets transferred by husband to his wife otherwise than for adequate consideration before 1-4-1937 and it was held that the said provision applied to the transfers made before 1-4-1937. The <ORG>, thus, repelled the contention that the amending Section would not apply to transactions entered into before the amendment.

12. There is thus a catena of decisions laying down, what has by now become a well established rule of interpretation, that any amendment which is in force at the beginning of the relevant assessment year must govern the case though the amendment is made after the income under assessment is earned in the accounting year which has since closed. <ORG> in <NAME> case (supra) followed the earlier decisions mentioned above and reaffirmed the said principle of construction of statutes. Similar view had been taken by <ORG> in <CITATION>  72 ITR 637.

13. <ORG> in <NAME> case (supra) while dealing with double taxation relief under India & Burmah Income-tax Relief Order, 1936, held that the law to apply to the claim of the assessee in this case was the law as it stood in the year of assessment, namely, 1947-48. It was observed that only where there was a change in law even within the course of the assessment year, it was the law in force at the commencement of the assessment year that should apply in the absence of any statutory provision to the contrary.

14. <ORG> in <CITATION>  84 ITR 661 observed that it was well recognized that specific dates in the 1961 Act and the Finance Act , 1955, had reference to assessment years and had nothing to do with the accounting years of an assessee which might differ from person to person. Thus, the amendment contained in the Finance Act was held applicable to the assessment year 1955-56.

15. <ORG> in <CITATION> .) Ltd.  119 ITR 830 observed at p. 834 that it was a well settled proposition in the income-tax law that in income-tax matters, the law to be applied is the law in force in the assessment year unless otherwise stated or implied. <ORG> followed the <ORG> decision in <ORG> case (supra).

16. <ORG> in <CITATION> ' 120 ITR 921 reiterated that it was a cardinal principle of tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication. They followed their decisions in <ORG> case (supra) and <CITATION>  60 ITR 262 (SC).

17. <ORG> in <CITATION>  25 ITR 58 was considering the applicability of the Finance Act , 1950 to 'United States of Rajasthan' for the assessment year 1950-51 and they observed that the income for the assessment year 1950-51 became assessable to Indian income-tax in respect of the previous year 1949-50. They rejected the contention that as the Constitution of India had come into force only on 26-1-1950, the income of the previous year before 26-1-1950 was not taxable to Indian Income-tax. At page 70, they observed that "The case is thus one where the statute purports to operate only prospectively, but such operation has, under the scheme of the Indian Income-tax law, to take into account income earned before the statute came into force. Such an enactment cannot, strictly speaking, be said to be retroactive legislation, though its operation may affect acts done in the past.

18. <ORG> in <ORG>'s case (supra) observed : "It is well settled that the Income-tax Act as it stands amended on the first day of April of any financial year must apply to the assessment of that year." However, dealing with amendment coming into force after 1st April, they observed "Any amendments in the Act which comes into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force." <ORG> explained that its earlier decision in <ORG> case (supra) had laid down that the amended Act as on 1st April applied to assessment year and accounting year had no relevance and that though subject of charge was income of the previous year, law to be applied was that in force in the assessment year.

19. <ORG> in <NAME> CIT were dealing with the assessability to capital gains of sale of ornaments in the financial year 1972-73 in view of amendment of Section 2(14)(ii) of the Act made effective from 1-4-1973 by including jewellery in the definition of 'capital assets'. Question before the Court was whether the said amendment governed the assessment year 1973-74. Following <ORG> case (supra), <ORG> held that the sale of jewellery in the financial year 1972-73 was assessable in the assessment year 1973-74. <ORG> thus rejected the assessee's contention that as the sale of jewellery was made before the amendment, the amendment did not apply to his case.

20. In <NAME> v. <ORG> [1973] 91 ITR 513 (Mad.), while dealing with voluntary disclosure under the Finance (No. 2) Act, 1967, <ORG> observed that it was a well settled rule of interpretation that in construing the scope of legal fiction, it would be proper and even necessary to assume all those facts on which alone the fiction can operate and a construction which defeats the very object sought to be achieved by the <ORG> must, if possible, be avoided.

21. Applying the aforesaid ratio to the facts of the case before us, the <ORG> having declared that Section 40A(8) would operate from the assessment year 1976-77, it has to be assumed as a necessary corollary that the said Section would operate for the previous year relevant for the assessment year 1976-77 and to hold that the said Section would operate only in respect of expenditure incurred on or after 1-4-1976, as contended by the assessee, would nullify the <ORG>'s intention to apply the said Section with effect from the assessment year-1976-77. We may observe that arguments advanced regarding interpretation of Section 64 of the Act, similar to those urged before us by the assessee-company, that the taxing provisions would apply only prospectively and would not affect transactions already completed, were rejected in a number of decisions where it was held that Section 64(1) concerns the income from transferred assets and not the date of transfer and if the income from transferred assets (to the wife or minor child without adequate consideration) arose in the accounting year relevant to the assessment year, the income was assessable. A number of cases are enumerated at page 1835 of Chaturvedi and Pithisaria's Income-tax, Third edn., Vol. 2. Similar are the observations at p. 2379 of <NAME> Law of Income-tax, Seventh edn., Vol. 3.

22. In this context, we have to refer to <CITATION> .) Ltd.  76 ITR 84 (Cal.) on which the assessee has relied in support of his proposition that only the law in force in the accounting year should be applied. In that case, the company's accounting year had ended on 30-6-1959 and it had declared dividend in March 1960 when the statutory percentages of total income under Section 23A of the 1922 Act for declaration of dividend (within 12 months of close of previous year) were 45 per cent in the case of manufacturing, processing, etc. and 60 per cent in the case of trading. However, by Section 11 of the Finance Act, 1959, the said statutory percentages were amended to 50 per cent and 65 per cent respectively, with effect from 1-4-1960.

23. The controversy was whether the revised percentages would apply in the assessee's case in respect of assessment year 1960-61 for which the <ORG> had made the assessment on 17-3-1961. <ORG> held that as the dividend was to be declared within 12 months following the expiry of the previous year, the statutory percentages operative in the previous year only have to be considered and not the revised percentages. The <ORG> came to this conclusion on analysing the language of Section 23A as well as the amendment introduced by the Finance Act , 1959 which, according to <ORG>, intended the revised percentages to be applicable only prospectively from 1-4-1960. The <ORG> further observed that tax cannot be levied by implication. The <ORG>, therefore, was of the opinion that the revised percentages would not be applicable and only the percentages operative in the previous year would be operative in that case.

24. Thus, the said case was decided on the language of Section 23A of the 1922 Act and of the Finance Act , 1959 and does not lay down any general proposition regarding the applicability of law as on 1st April to the assessment year (irrespective of the previous year followed by the assessee).

25. <CITATION> .) Ltd.  71 ITR 380 (Mad.), it was held that the amended Section 23A which had become applicable from 1-4-1954 would apply in the assessee's case whose accounting year ended on 31-5-1954 (relevant for the assessment year 1955-56). Thus, <ORG> view is different than that of <ORG>.

26. The scheme of levy of additional income-tax on undistributed profits of private limited companies under Section 104 of the 1961 Act (and Section 23 A of the 1922 Act) is entirely different from levy of income-tax on income or allowance of expenditure. Under the aforesaid provisions, a private company must distribute out of its total income statutory percentages as dividend within 12 months of expiry of its previous year, otherwise, it will have to pay additional income-tax. Thus, the law applicable would be as obtaining immediately on close of the previous year. The proposition regarding applicability of income-tax laws as on 1st April being applicable in assessment year would, therefore, not be applicable while considering the special provision of levy of income-tax on undistributed income. That is why the case law relevant to the controversy before us, namely, of law existing on 1st April being applicable to assessment year was neither cited nor considered by <ORG> in <ORG>'s case (supra). We may point out that the assessee had to take positive action of declaring dividend within a time framework, i.e., immediately after the close of accounting year and in any case before the expiry of 12 months thereafter so as to avoid levy of additional income-tax. If the assessee did not declare dividend of statutory percentages of total income, then additional income-tax was to be levied by the <ORG>. However, in the case before us, no positive action on the part of the assessee is contemplated and only at the time of computation of the total income, the <ORG> has to disallow part of certain expenditure (on payment of interest) in the light of law obtaining as on 1st April of the assessment year in question.

27. Let us now analyse the assessee's arguments based on <ORG> case (supra). The first argument is that though there is nothing in Section 40A(8) to say that the amount disallowed under that Section shall be deemed to be the income of the assessee but the said Section by implication treated the disallowed expenditure on interest as part of the income. Thus, there was implied deeming of the disallowed interest as income and the implied deeming of income did not have any retrospective effect as the <ORG>'s usual practice was of giving the assessee a chance to arrange its affairs. It was admitted that Section 40A(8) was introduced by the Finance Act , 1975 with effect from the assessment year 1976-77, thus, giving one year's advance notice, still it was claimed that sufficient notice was not given to the assessees to arrange their affairs. Though the revenue contended that the <ORG> was competent even to retrospectively amend the law and, thus, assess income which had already accrued in the earlier years, the assessee urged that for retrospective legislation, there must be specific intention expressed by the <ORG> and that in the present case, there was no express declaration of such intention by the <ORG>. It was urged that holding that Section 40A(8) operated from the assessment year 1976-77, irrespective of the previous year, would lead to absurd and anomalous results and applying the modern 'purposive approach' by considering the policy behind the enactment of curbing credits by non-banking concerns, the curb could only be on taking fresh interest-bearing deposits after 1-4-1976.

28. We have given very careful and anxious consideration to this matter and we find ourselves unable to accept the assessee's contentions. There is no warrant for equating the disallowed expenditure on interest with deemed income. Income and expenditure are two different and diametrically opposite concepts. Income is what comes in, while expenditure is what goes out. Thus, to treat income as interchangeable with expenditure would be confusing the issue. We, therefore, cannot accept the proposition that disallowed expenditure becomes deemed income.

29. Regarding giving the assessee a chance to arrange its affairs, we are unable to find any such rule of construction of statutes. When the <ORG> has full and plenary powers even to make laws retrospective in operation, we do not see anything wrong with the <ORG> introducing Section 40A(8) by the Finance Act , 1975 and making it effective only one year later, i.e., from 1-4-1976 which would thus be operative in the assessment year 1976-77. <ORG> in <NAME> of <NAME>'s case (supra) at p. 223 observed "under the express terms of Section 3 of the Indian Income-tax Act, 1922, the subject of charge is not the income of the year of assessment, but the income of the previous year. This is in direct contrast with the English Income-tax Acts, under which the subject of assessment is the income of the year of assessment, though the amount is measured by yardstick based on previous years". Similarly, <ORG> in <NAME> case (supra) at p. 665 observed : "It was contended by the learned counsel for the assessee that Section 2(6C)(iii) came into force on April 1, 1955, while the previous year relevant to the assessment year in question was from October 1, 1953 to September 30, 1954. Section 2(6C)(iii) , therefore, did not apply to the case. The contention is not well founded Further, it is well recognized that the specific dates which are mentioned in the Income-tax Act have reference to the assessment years and have nothing to do with the accounting years of an assessee which may differ from person to person. The amendment contained in the Finance Act , 1955, in respect of Section 2(6C)(iii) was thus applicable to the assessment year 1955-56 and was rightly invoked by the Income-tax Officer."

30. We are unable to accept <NAME> contention that there was any ambiguity regarding the applicability of provisions of Section 40A(8) or that the applicability of the said provisions to the assessment year 1976-77 would lead to manifestly absurd and anomalous results. When the intention of the <ORG> is clear and unequivocal, there is no room for trying to go behind the clear language of the Section.

31. <NAME> on Interpretation of Statutes, Twelfth edn. observes at p. 28 under Chapter 2 while discussing the general principles of interpretation that the primary rule is of literal construction. The rule of construction is 'to intend the <ORG> to have meant what they have actually expressed'. "Where the language is plain and admits of but one meaning, the task of interpretation can hardly be said to arise."

32. Odgers' Construction of Deeds and Statutes, Fifth end. at p. 260 under the head '8. Statute, if clear, must be enforced' observes "if the language of a statute is clear, it must be enforced though the result may seem harsh or unfair and inconvenient". Reliance is placed on Re. <NAME>'s Contract [1941] Ch. 463 at p. 478 per Lord Greene M.R.

33. Craies on Statute Law, Seventh end. at p. 64 under Chapter 'Construction where the meaning is plain' under the heading 'Meaning and legal effect distinguished' observes : "There is no place for interpretation or construction except where the words of the statute admit of two meanings." As <NAME> said : "Where the words of an Act of <ORG> are clear, there is no room for applying any of the principles of interpretation which are merely presumptions in cases of ambiguity in the statute." Under the heading 'Construction according to intention' (on the same page) the author observed : "The cardinal rule for the construction of Acts of the <ORG> is that they should be construed according to the intention expressed in the Acts themselves. If the words of the statute are themselves precise and unambiguous, then no more can be necessary than to expound those words in their ordinary and natural sense. The words themselves alone do in such a case best declare the intention of the law-giver." It was further observed (on p. 65) that the primary rule is the literal rule and that the intention of the <ORG> is not to be speculated on.

34. Bindra on Interpretation of Statutes, Fifth edn. at pages 552-553 under the heading 'Rule to determine tax liability' noted that the Lord <NAME> observed in <NAME> v. Attorney General [1869] LR 4 HL 100 : "As I understand the principle of all fiscal legislation, it is this : if the person sought to be taxed comes within the letter of the law, he must be taxed, however, great the hardship may appear to the judicial mind to be". Similarly, <NAME> in Attorney General v. Earl of <NAME> said : "Therefore, the <ORG> fails if the case is not brought within the words of the statute, interpreted according to their natural meaning". At p. 554 under the head 'Literal construction of words used', the author observed : "It is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax, one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the revenue satisfies the <ORG> that the case falls strictly within the provisions of the law, the subject can be taxed." At p. 559, under the head 'Considerations of reason and justice not material', it was noted that in <NAME> v. Hall,;Tounten, J. observed with reference to stamp law that it "imports nothing of reason and justice but depends entirely upon the language of the <ORG>". The author further observed on the basis of <CITATION> AIR 1957 AP 706, 710. "In case of a taxing statute, the <ORG> should be guided by the general scope of the enactment and the express provisions of the statute and not by considerations which might weigh in a case arising under the statute of frauds or similar statutes". At p. 560, the author noted that in the case of a fiscal enactment, one has to look at what is clearly said. There is no room for any 'intendment'. No argument based on hardship or inconvenience can be entertained. Rule of strict construction does not mean that the language of the provisions should be tortured into meaning something artificial, if its natural meaning is not repugnant to reason. Thus, the rules of interpretation of statutes are quite emphatic that where the language of a statute is clear, effect should be given to it, however, hard the case of the taxpayer may appear to be.

35. Applying the said rules to the case before us, we do not see how the provision for disallowance of interest under Section 40A(8) is not applicable to the assessment year 1976-77. We are, therefore, unable to accept <NAME> argument that literal construction of Section 40A(8) would lead to absurd and anomalous results. <NAME> has not spelt out what absurd or anomalous results he visualised and we are unable to see any such results. According to us, the provisions of Section 40A(8) do not lead to any absurd or anomalous results and the intention of the <ORG> is quite clear that the said provisions are to apply in the assessment year 1976-77 and, therefore, the said provisions would apply, irrespective of the fact as to which previous year the particular assessee follows and so long as the previous year followed by the assessee would be relevant for the assessment year 1976-77, the provisions of Section 40A(8) would apply to that particular assessee. We have already noted that the <ORG> had given the assessees one year's notice by introducing the said provision in the Finance Act , 1975 though it. was applicable for the assessment year 1976-77. Therefore, the submission of <NAME> that an assessee should be given adequate notice to arrange his affairs, though legally not correct, is still factually invalid because the <ORG> did give one year's advance notice to the assessees to arrange their affairs. The <ORG> has plenary powers to legislate prospectively as well as retrospectively and there is no limitation on the <ORG>'s power to direct from which date a particular fiscal provision would operate. It is true that in some cases the <ORG> does specify a date from which date the said provision is to come into force, For example, under Section 40A(3) in respect of disallowance of payment of Rs. 2,500 or more not paid by a crossed cheque, the <ORG> did specify that payments made after 31-3-1969 would be hit by the said provision. However, the"<ORG> has also specified in respect of a number of other fiscal provisions, particularly annual amendments to the 1961 Act brought through the Finance Act s that certain provisions would be applicable with effect from specified assessment years. This is a well recognized and much used method of amendment of the Act. We cannot arrogate to ourselves the power to sit in judgment over the wisdom of introducing a particular fiscal provision with effect from a particular assessment year and we have to give effect to the clear legislative intention as expressed by the <ORG> through the amendment to the Act. It is not for us to twist the fiscal provision on the ground that literal construction of the fiscal provision would result in hardship or that the particular assessee did not get sufficient advance notice to arrange his affairs in the light of the amendment. Nor can we import 'purposive approach' to hold that though Section 40A(8) was clearly directed to be operative with effect from 1-4-1976 for the assessment year 1976-77, yet, according to us, it would apply only to expenditure on interest incurred after 1-4-1976. For the foregoing reasons, we are, therefore, anable to accept the assessee's contentions based on the view taken by the Madras Bench.

36. In the result, we uphold the Commissioner (Appeals)'s order that Section 40A(8) was applicable in the assessment year 1976-77 and, therefore, the disallowance made by the <ORG> stands upheld.

37. We now deal with the other grounds raised in this appeal.

38. Ground Nos. 2-3 are regarding assessability of reimbursement of medical expenses and applicability of Sections 40A(5) / 40(c) of the Act. The <ORG> in paragraph 3 of the assessment order observed as under :

3. Disallowance under Section 40A(5) and under Section 40(c) .-Assessee has worked out this disallowance at Rs. 2,60,659 without taking into account reimbursement of medical expenses. The same has been considered as perquisites while arriving at the above disallowance. The correct disallowance works out to Rs. 2,84,151.

The Commissioner (Appeals) in paragraph 7 noted the assessee's grievance against the <ORG>'s treating reimbursement of medical expenses as perquisite. He upheld the <ORG>'s action in applying Section 40A(5) which finding, according to us, was unnecessary as there was no controversy regarding the disallowance of expenses of Rs. 2,60,659 and the only controversy before the Commissioner (Appeals) was regarding the treatment of reimbursement of medical expenses as perquisite by the <ORG>. Hence, ground No. 2 raising the point whether Section 40A(5) or Section 40(c) applied to director employees being academic is rejected. Salaries of all the directors were above Rs. 72,000 and, therefore, it is immaterial whether Section 40(c) or proviso to Section 40A(5) applies in the case of director employees.

39. The Commissioner (Appeals) further held that cash reimbursement of expenses constituted a distinct addition to the salary of the director employees. He thus varied the <ORG>'s findings because the <ORG> had treated the reimbursement of medical expenses as perquisite. The assessee-company as per Annexure XIII (paper book, page 31) had worked out the disallowance under Section 40A(5) in respect of directors at Rs. 2,28,424 (as exceeding Rs. 72,000 in each case) and in respect of other employees at Rs. 32,235 and the total disallowance at Rs. 2,60,659 and had given a note that the medical expenses reimbursed to the employees and directors had not been considered as perquisite while computing the aforesaid disallowance. The company furnished details of medical expenses (PB 32) of directors at Rs. 13,608 and all other employees at Rs. 10,233 totalling Rs. 23,841 and it is this amount which the <ORG> added as 'disallowance under Section 40A(5) and 40(c) '.

40. Thus, the controversy before us is whether the Commissioner (Appeals) was right in treating the reimbursement of medical expenses as part of salary.

41. We may straightaway note that the matter is covered squarely by a decision of <ORG> in <CITATION>  3 SOT 72, where in paragraph 19 the Bench noted that Explanation 2 to Section 40A(5) defined not only 'perquisites' but also defined 'salary' by stating that 'salary' has the meaning assigned to it in Section 17(7) , read with Section 17(5) , of the Act subject to certain modifications, namely, that perquisite was omitted from Section 17 (/)(iv). The Bench noted that 'profits in lieu of or in addition to salary or wages' was not omitted from the same Clause and that Section 17(3)(ii) defining 'profits in lieu of salary' included 'any payment . . . received by an assessee from an employer'.

42. The Special Bench observed that "the words 'any payment' again is wide enough to cover every payment made by the employer to the employee irrespective of the context in which or the purpose for which the payment is made.... In other words, it would also include a payment made by the employer to the employee which is in the nature of payment made for reimbursement of expenses. (p. 77)

43. The Bench then arrived at the conclusion that 'salary as defined in Explanation 2 includes every cash payment due to or received by an employee'. The Bench was considering reimbursement by the employer to the employee of medical expenses and lunch expenses (paragraph 8).

44. At the hearing before us, the learned counsel for the assessee urged for reconsideration of the aforesaid <ORG> decision. He relied on <ORG>'s order in the assessee's case for the assessment year 1977-78 where the Bench had held in paragraphs 10 and 10(a) that cash reimbursement made by the assessec-company to its employees was not hit by Section 40A(5) in case of employees and by Section 40(c) in the case of directors and employee-directors. The Bench in paragraph 8 noted the assessee's contention that medical reimbursement was a perquisite but in view of expression 'whether convertible into money or not' qualifying perquisite in Section 40A(5)(a)(ii) , cash payments could not be covered by. the said sub-clause. Support was taken from <CITATION> .) Ltd.  132 ITR 125 (Bom.) where, following <CITATION> .  119 ITR 431 (Cal.) and <CITATION> .  125 ITR 150 (Mad.), <ORG> held that amount paid by way of bonus and commission in cash by the assessee-company to employees was not a perquisite within the meaning of Section 40(c) (/7i) in view of the said term 'whether convertible into money or not' used in the said Section (which was operative in the assessment year 1964-65). The Bench accepting this contention held that medical reimbursement paid in cash was not a perquisite, as Section 40A(5)(a)(ii) contemplated disallowance of payment in kind only by the employer to the employee. The Bench noted that similar view had been taken in <CITATION> .  137 ITR 285 (Cal.) which had followed its earlier decision in <ORG> case (supra) while interpreting provisions of Section 40(c)(iii) in respect of motor car allowance paid in cash to employees.

45. For holding further that the reimbursement of medical expenses was not even part of salary, the said Bench 'A' relied on the <ORG>, <ORG> decision in IT Appeal Nos. 676-679 (<ORG>.) of 1980 dated 30-3-1981 (PB 33-34).

46. We have perused the said decision of <ORG> where for holding that the cash allowances are not perquisites, reliance was placed on <ORG>'s case (supra) and <CITATION> .  125 ITR 341 (Kar.). However, <ORG> further observed that medical reimbursement was not a 'remuneration' within the meaning of Section 40(c) nor was a 'benefit or amenity'. The Bench for taking this view relied on some earlier decision which has not been made available to us. Thus, <ORG>'s decision is no authority for holding that cash reimbursements by the employer to the employee are not part of salary. We have already noted above detailed discussion by <ORG> in <ORG>'s case (supra) for holding that cash payments by the employer to the employee are covered by salary.

47. The learned counsel for the assessee next urged that the expression 'whether convertible into money or not' occurring in Section 40A(5)(a)(ii) qualifying 'perquisite' excludes cash payment as was held in <ORG>'s case (supra). It is next urged that the definition of 'perquisite' in Explanation 2(b) to said Section is exhaustive and that Clauses (i) to (v) thereof do not contemplate cash payment.

48. Accepting the above argument of the assessee should imply that cash payments being not covered by the definition of 'perquisite' under Explanation 2(b), should fall under 'salary' under Explanation 2(a) in view of inclusive definition of 'salary' as per Section 17(1) which has been adopted by Explanation 2(a) but the learned counsel for the assessee even disputes this proposition on the ground that the ordinary meaning and connotation of 'perquisite' should not be ignored and while ordinary meaning of 'salary' does not include reimbursement of expenses, ordinary meaning of 'perquisite' would take in reimbursement of expenses. For the proposition, he refers to discussion under the head 'Perquisite' in Kanga & Palkhivala's Law and Practice of Income-tax, Seventh edn. under Section 17 which reads as follows :

'Perquisite'.-'Perquisite' is defined in the Oxford English Dictionary as 'any casual emolument, fee, or profit, attached to an office or position in addition to salary or wages'. 'Perquisite' denotes a personal advantage ; it is something that benefits a man by going 'into his own pocket' : it does not cover a mere reimbursement (be it by way of allowance) of travelling or other expenditure incidental to the employment. Thus, transport facilities made available to an employee for going from home to office and back, should not be regarded as a perquisite. (p. 311)

49. The assessee relied on CGT v. <NAME> [1971] 82 ITR 599 where <ORG> approved the following observations of Craies on Statute Law, Sixth edn. at p. 213 :

...An interpretation Clause which extends the meaning of a word does not take away its ordinary meaning. An interpretation Clause is not meant to prevent the word receiving its ordinary, popular and natural sense whenever that would be properly applicable, but to enable the word as used in the Act, when there is nothing in the context or the subject-matter to the contrary, to be applied to some things to which it would not ordinarily be applicable. (p. 605) Reliance was also placed on CGT v. Dr. <NAME> [1974] 95 ITR 476 at p. 481 where <ORG> extracted the observations of <ORG> in <ORG> v. <NAME> AIR 1957 SC 121 to the effect that there must be compelling words in the statute to show a meaning different from or in excess of the ordinary meaning was intended and where within the framework of the ordinary acceptation of a word, every single requirement of the definition Clause was fulfilled, it would be wrong to take the definition as destroying the 'essential meaning' of that word.

50. The revenue's contention was that the purpose of introduction of Section 40A(5) was given in the Finance Minister's Budget Speech for 1971-72 in  80 ITR (St.) 96 which reads :

I am firmly of the view that the fiscal instrument must be deployed to discourage payment of high salaries and remunerations which go ill with the norms of egalitarian society. I accordingly propose to impose a ceiling on the remuneration of company employees which would be deductible in the computation of taxable profits. The ceiling is being set at Rs. 5,000 per month. Together with the existing ceiling of Rs. 1,000 per month in the case of perquisites, the allowable overall ceiling on remuneration and perquisites, for purposes of taxation, will be at Rs. 6,000 per month....

It was, therefore, urged for the revenue that Section 40A(5) was a complete code covering the payments by the company to its employees in the form of salary, remuneration and perquisites and, therefore, no item could be said to fall outside these categories. It was emphasized that while 'perquisite' was given an exhaustive definition by Explanation 2(b) to Section 40A(5) by using the expression 'perquisite means', the term 'salary' was not given an exhaustive definition by Explanation 2(b) and only the inclusive definition of Section 17(1) was grafted in the said Explanation and, therefore, whatever does not fall under the head 'Perquisite' would be covered under the inclusive definition of 'salary'. It was urged that in this context the ordinary meaning of the word 'perquisite' cannot take away the force of an enactment nor defeat its object. Reliance was also placed on Notes on Clauses in the Finance (No. 2) Bill, 1971 in  80 ITR (St.) 147 where dealing with Clause 10 it was observed :

... 'salary' is being defined broadly on the lines of the provision in Section 17 of the Income-tax Act subject to certain modifications. The expression 'salary' will include wages ; any annuity or pension ; any gratuity, any fees, commissions or profits in lieu of or in addition to any salary or wages;... It will, however, not include perquisites....

It was, therefore, urged that reimbursement of medical expenses having been held to be not perquisite in view of the expression 'whether convertible into money or not' governing the expression 'perquisite' in Section 40A(5)(a)(ii) and thus restricting its ordinary meaning, the cash reimbursement would necessarily fall under 'salary' in view of the inclusive and wide definition of 'salary' in Section 17(1) , read with Section 17(3) and in view of the clear enunciation of law by the <ORG>, Special Bench, Bombay in <ORG> case (supra).

51. We see merit in the revenue's contentions. While definitions of 'sa<NAME>ry' and 'perquisite' in Section 17(1) are inclusive, in Exp<NAME>nation 2 to Section 40A(5) an exclusive and exhaustive definition of 'perquisite' was given as per C<NAME>use (b) covering only five categories enumerated therein, but in respect of 'sa<NAME>ry', the inclusive definition of Section 17(7) was adopted, which means that what is not covered by five categories of 'perquisite' would fall in the net of 'sa<NAME>ry' in view of 'sa<NAME>ry's' inclusive definition in Section 17(1) . We have already noted that Section 17(5) defining 'profits in lieu of sa<NAME>ry' includes under Sub-c<NAME>use (ii) any payment due to or received by the employee from the employer. Thus, all payments by the employer to the employee, which are held to be not perquisite like reimbursement of medical expenses, would necessarily be covered under 'sa<NAME>ry'. In this connection, the revenue is right in relying on the Finance Minister's speech as well as notes on c<NAME>uses to show the <ORG>'s intention in introducing Section 40A(5) to put a curb on sa<NAME>ries, remunerations and perquisites paid by companies to its high executives. The 'mischief rule' as enunciated in Heydoris Case 3 Co. Rep. <NAME>, of <ORG>, Twelfth edn. is :

...that for the sure and true interpretation of all statutes in general (be they penal or beneficial, restrictive or enlarging of the common law) four things are to be discerned and considered: (1st) What was the common law before the making of the Act. (2nd) What was the mischief and defect for which the common law did not provide. (3rd) What remedy the <ORG> hath resolved and appointed to cure the disease of the commonwealth. And, (4th) The true reason of the remedy ; and then the office of all the Judges is always to make such construction as shall suppress the mischief and advance the remedy and to suppress subtle inventions and evasions for continuance of the mischief and pro privato commodo and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico.... (p. 40)

52. Thus, in view of the declared intention of the <ORG> to curb the high salaries and perquisites of senior executives of the companies, we have to interpret Section 40A(5) so as to advance the remedy and to suppress subtle inventions and evasions for continuance of the mischief and to add force and life to the cure and remedy, according to the true intent of the makers of the Act. Thus, to hold that reimbursement of medical expenses would neither be covered under 'salary' nor under 'perquisite' would be to defeat the purpose of the legislation.

53. <NAME> on Interpretation of Statutes under the head 'Construction ut res magis valeat quam pereaf observed :

'If the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility and should rather accept the bolder construction based on the view that <ORG> would legislate only for the purpose of bringing about an effective result.' 'Where alternative constructions are equally open, that alternative is to be chosen which will be consistent with the smooth working of the system which the statute purports to be regulating ; and that alternative is to be rejected which will introduce uncertainty, friction or confusion into the working of the system'. (p. 45) Applying the above principle, we have to avoid an interpretation which would make the provisions of Section 40A(5) ineffective in curbing the mischief which the <ORG> intended.

54. <NAME> in Law of Income-tax, Seventh edn., Vol. 1 under Section 17 under the head "4. 'Perquisites' Sub- section (2).--'Perquisite', meaning of", observed :

Formerly, the word 'perquisite' was used to denote emoluments not fixed generally and granted mostly ex gratia, whether in cash or in kind, it denoted a benefit, amounts or advantage mostly in kind enjoyed by the employee at the cost of the employer, generally in addition to the salary or wages to which he is entitled. Perquisites are, in many cases, in the nature of voluntary payments attached to an office or employment, such as the fee of any clerk serving under a barrister, but in some cases, there may also be legal obligation to pay, though, in common parlance, one rarely used the term 'perquisites' where the payment is claimable as of right. Voluntary or not, when actually paid, they fall to be taxed. Their characteristic is that they are payable only during the continuance of employment and are directly dependent upon service. They cease when the employment ceases. (p. 970)

55. At the same page, the commentator noted that 'the grant or allowance of perquisites...has become a regular feature of almost all employment,... The statutory definition of salary and wages had, therefore, to be enlarged as to comprehend the most common forms of advantages and benefits enjoyed by an employee....'

56. While dealing with 'profits in lieu of salary' under Section 17(5) at page 983 under paragraph 14(c) 'other payments received from employer-clause (ii)', the commentator noted that "any payment due to or received by an asscssee from his employer...is taxable as 'profits in lieu of salary'.

... This is a comprehensive provision by virtue of which all payments made by an employer to an employee whether made in pursuance of a legal obligation or voluntarily are brought under 'profits in lieu of salary'.

57. We further note that <ORG> in <CITATION> [l985] 153 ITR 444 observed at p. 455 that cash payment made by the employer to the employee as cash allowance was not covered under definition of 'perquisite' as per Clause (b)(iv) of Explanation 2 to Section 40A(5) and that the said expenditure was expenditure or payment coming under Section 40A(5)(a) (0 which covers any expenditure which results directly or indirectly in the payment of any salary to employee. The Court, therefore, held that car allowance was, thus, a cash payment periodically made in addition to salary, and, therefore, partook of the nature of salary.

58. In this context, we also note that <ORG> (P.) <CITATION>  149 ITR 457 was dealing with disallowance under Section 40(a)(v) of reimbursement by employer company of medical expenses incurred by managing director in the assessment years 1969-70 and 1970-71 when the said provision was in force. [ Section 40(a)(v) was deleted and substituted by Section 40A(5) with effect from 1-4-1972.] <ORG> dissented from the Full Bench decision of <ORG> in <CITATION> .  135 ITR 19 where it was held that house rent allowance paid by the employer company to its employee was a perquisite and the words 'whether convertible into money or not' qualifying the words 'beneftt, amenity or perquisite' would not exclude cash payments by the employer to the employee and a contrary construction accepted by the Karnataka, Calcutta and Madras High Courts was irrational defeating the very purpose of Section 40(a)(v) -The Kerala High Court, therefore, held that house rent allowance received by an employee from an employer was covered by Section 40(a)(v) .

59. <ORG>, however, fell in line with the aforesaid three <ORG>, who, in <ORG> case (supra), <ORG> case (supra) and <ORG>'s case (supra) had taken the view that the expression 'whether convertible into money or not' qualifying the words 'benefit, amenity or perquisite' excluded cash payments made by the employer to the employee. <ORG> in this context had noted at page 462 the contentions by the assessee's counsel : 'According to him, any cash payment made by the company to its employee would be part of the salary'. <ORG> at page 465 observed : 'Any cash payment could well be part of the salary as given in Section 17 of the Act'. <ORG> accordingly held that reimbursement of medical expenditure of the managing director was not a 'benefit, amenity or perquisite', whether convertible into money or not, and, therefore, Section 40(a)(v) did not apply to cash payments by the employer to the employee. [The question regarding medical reimbursement expenses being part of salary was not referred to <ORG> as under Section 40(a)(v) fell only expenditure on provision of benefit, amenity or perquisite]. We may elucidate by referring to legislative changes. Section 40(c)(iii) , as amended by the Finance Act , 1964, put a ceiling of one-fifth of salary, on all expenditure on employees resulting in benefit, amenity or perquisite. This Clause was substituted by Section 40(a)(v) with effect from 1-4-1969 which put a further ceiling of Rs. 1,000 per month on expenditure on benefit, amenity or perquisite to an employee. Section 40(a)(v) was substituted by Section 40A(5) with effect from 1-4-1972 which put a ceiling on salary to employees of Rs. 5,000 per month, besides ceiling on perquisites of Rs. 1,000 per month and one-fifth of salary. Similarly, on the directors of the company, overall ceiling of Rs. 72,000 was imposed with effect from 1-4-1972 under Section 40(c) in respect of expenditure on remuneration, benefit, amenity, etc. Thus, before 1-4-1972, there was no controversy whether an expenditure was covered by salary or perquisite. In case of an employee of a company, the <ORG> was concerned only with curbing perquisites, benefits or amenities. The <ORG> was not concerned about quantum of salary of employees. In respect of a director of a company, the <ORG> was concerned only with reasonableness of total expenditure on director as remuneration, benefit, amenity or expenditure or allowance in respect of company's assets.

60. In this context, we may also note that the head-note in <ORG>'s case (supra) is incorrect insofar as it is indicated that house rent allowance is not a perquisite 'or part of salary'. All that <ORG> held at page 342 was that payment of house rent allowance or bonus is not a perquisite because of the expression 'whether convertible into money or not' qualifying the words 'benefit, amenity or perquisite'.

61. We are, therefore, of the view that the reimbursement of medical expenses being a cash payment by the employer to the employee would fall under 'salary' in view of the very wide and inclusive definition of 'salary' as per Section 17(1) which is adopted by Clause (a) of Explanation 2 to Section 40A(5) , in contradistinction to only five enumerated categories being covered under 'perquisites' as per Clause (b) of said Explanation 2 to Section 40A(5) . Thus, salary would cover any perquisite not falling in the said five categories of perquisites and particularly a cash payment [being hit by the expression 'whether convertible into money or not' qualifying 'perquisite' in Section 40A(5)(a)(ii) ]. We have already noted above the view taken by <ORG> in <ORG>'s case (supra) that Section 17(3) by giving inclusive definition of 'profits in lieu of salary' [appearing in Section 17(7)(iv) ] covered in its Sub-clause (ii) any payment due to or received by an employee from an employer. We note that the said Sub-clause excluded from purview of salary, following payments :

(A) death-cum-retirement gratuity-Section 10(70) of the Act (B) payment in commutation of pension-Section 10(10A) (C) compensation on retrenchment received by workmen under the Industrial Disputes Act , 1947-Section 10(10B) (D) payment from a provident fund to which Provident Funds Act , 1925 applies- Section 10(1) (E) accumulated balance in provident fund becoming payable to employee- Section 10 (/2) (F) house rent allowance- Section 10(13A) .

However, under the said sub-clause, payments from provident fund or other fund (not being approved superannuation fund) are included under salary to the extent it does not consist of contributions by employee or interest on such contributions.

62. From the above narration, it would be clear that but for the exclusion provided in the said sub-clause, the said payments would have been treated as salary though taking ordinary meaning of payments 'in lieu of salary', nobody would consider such payments to be in lieu of or instead of or in substitution of salary. This shows that the said Section 17(3)(ii) was very wide in its sweep, despite its rather deceptive or inelegant descriptions as 'profits in lieu of salary'.

63. We further observe that Clause (iv) of Section 17(i) besides taking in its sweep 'profits in lieu of salary', also covers 'profits in addition to any salary'. Thus, any payments received by an employee from his employer under terms of service contract or otherwise would be fully caught in the net of 'profits in addition to any salary'. [Emphasis supplied]

64. We further note that Clause (i) of Section 40A(5)(a) covers 'any expenditure which results directly or indirectly in the payments of any salary'. [Emphasis supplied] Salary is recompense for the services rendered. While salary (paid periodically) is the direct payment : any benefit or advantage or amenity received by the employee from employer would be the indirect payment of salary and would thus be clearly covered by the said Clause (0 of Section 40A(5)(a) .

65. For the above reasons, we see no ground to depart from the view taken by <ORG>, Bombay, in <ORG> case (supra). We would accordingly hold that reimbursement of medical expenses being a cash payment was rightly treated as part of salary for computing the disallowance under Section 40A(5) . Position is different while assessing perquisite of medical reimbursement in hands of employee under Section 17 in view of the <ORG> circulars. Circular No. 336 dated 16-4-1982 [See Taxmann's Direct Taxes Circulars, Vol. 1, 1985 edn., p. 163] directed that only medical reimbursement in excess of one month's salary is to be included in hands of employee. Circular No. 376 dated 6-1-1984 [See Taxmann's Direct Taxes Circulars, Vol. 1, 1985 edn., p. 163] clarified that only reimbursement in excess of Rs. 5,000 was includible. However, Circular No. 445 dated 31-12-1985- 24 Taxman (St.) 111 exempted all expenditure in a recognised public hospital in India.

66. We may further observe that the position under Section 40(c) is clearly against the assessee as the above argument is not available to the assessee because the word 'perquisite' does not appear in Section 40(c)(i) which only uses the words 'remuneration or benefit or amenity'. Further, the restrictive phrase 'whether convertible into cash or not' is missing in the said clause. Under these circumstances, the reimbursement of medical expenses to a director by employer company would clearly be hit by Section 40(c)(i) because it is an expenditure which results directly or indirectly in the provision of 'remuneration or benefit or amenity' to a director.

67. Thus, both under Section 40A(5) as well as under Section 40(c) , reimbursement of medical expenses by the employer company to the employee would form part of the remuneration of the employee and in case of a director, any payment in excess of Rs. 72,000 would have to be disallowed. In case of employees simpliciter, provisions of Section 40A(5) would apply and, therefore, considering the medical reimbursement as part of the salary, perquisites in excess of one-fifth of salary have to be disallowed. As from the computation given to us, it is not clear how the disallowance has been computed by the ITO, we direct the ITO to examine if any recomputation of disallowance is called for in the light of our directions above.

Ground No. 1 :

68. The assessee is aggrieved against disallowance of depreciation on assets used by the assesssee for conducting scientific research. These assets were installed in the earlier years for which deduction equivalent to full cost has already been allowed to the assessee under Section 35 of the Act. The <ORG> rejected the assessee's claim for depreciation and the Commissioner (Appeals) upheld it in view of the amendment of Section 35(2)(iv) by the Finance (No. 2) Act, 1980. Under similar circumstances, <ORG> in <CITATION> .  149 ITR 771 has held that depreciation cannot be granted for the subsequent year on the assets on which the relief under Section 35(2) equivalent to the full cost has already been allowed. The assessee, however, contends that the constitutionality of the aforesaid amendment in 1980 is under challenge before <ORG> and, therefore, the <ORG> be directed to abide by the decision of <ORG>. We direct accordingly.

Ground No. 4 :

69. Foreign travel expenses of Rs. 19,783 of Mrs. <NAME>, wife of chairman of board of directors of the assessee-company, was disallowed by the <ORG> after observing that the assessee was unable to produce any resolution of board of directors to sanction the said visit by the wife who accompanied her husband on the foreign visit and, thus, according to the <ORG>, there was no evidence that her visit served the business interest of the assessee-company. The Commissioner (Appeals) vide paragraph 9 noted the assessee's contention that Mr. <NAME> had gone abroad for business discussion with the assessec-company's British Associates and had also visited France and Italy where the assessee-company had also its associates and that on such, visits it was customary for meeting at social level that the chairman should be accompanied by his wife. The Commissioner (Appeals), however, rejected the assessee's contention on the ground that the business connection of the wife's visit was too far-fetched.

70. At the hearing before us, our attention was drawn to the company's application to <ORG> for release of foreign exchange for the chairman and his wife and the application form indicated that they were proceeding abroad for business purposes. <ORG> sanctioned on 7-5-1975 foreign exchange of £ 840 for Mr. <NAME> and £ 210 for his wife for their stay of 40/42 days in UK, Italy and France. The learned counsel for the assessee reiterated that the wife accompanying the husband (chairman) was in business interest. Reference was made to company's application dated 18-4-1975 to the Assistant Controller, <ORG>, <ORG>, indicating, that chairman and chief executive of '<ORG> <ORG> extended invitation to Mr. & Mrs. <NAME> and that the wife was accompanying her husband as a number of social engagements were included in the programme. <ORG> was placed on Taxes & Planning dated 15-7-1984 a decision of the <ORG> Bombay Bench in <ORG> v. <ORG> [IT Appeal Nos. 2606 and 2607 (Bom.) of 1982] where in paragraph 22 the Bench upheld the Commissioner (Appeals)'s order that wife accompanying the husband abroad (who is a director of the company) was in business interest.

71. The revenue relied on <CITATION> .  153 ITR 422 (Mad.) and <ORG> (P.) <CITATION>  153 ITR 437 (Guj.). In the first case, wife had accompanied the husband on foreign tour. The husband was a partner of the firm and the wife had accompanied him because of the husband's indifferent health. <ORG> held that the wife's travelling expenses were in the nature of personal expenses and even assuming that the expenditure related to business purposes, the expenditure had a dual and twin purpose and served not only purposes of business but also a personal or private purpose and as the expenditure did not exclusively serve the business, it was not allowable under Section 37(1) of the Act. In the second case, <ORG> was considering the case of a director of a company keeping indifferent health and his wife accompanying him on the foreign tour. It was urged before <ORG> that in case the wife had not accompanied the husband, the company would have had to engage a nurse. <ORG> still held that expenses being personal, were not allowable as the wife was not a qualified or trained nurse.

72. In both the above cases, the asscssees were unable to prove that the wife accompanied the husband for business considerations. The case before us is, therefore, entirely different where it is claimed that the wife accompanied the husband because of business considerations. In the modern age and more so in the Western countries, the senior executives are, as a matter of social custom, accompanied by their wives when the visit, though for business purposes, has necessarily some social aspects also. Under these circumstances, we hold that the expenditure of Rs. 19,783 which includes air-fare of Rs. 15,656 and foreign exchange of Rs. 4,022 equivalent to £ 210 is an allowable expenditure.

Ground No. 5.:

73. The <ORG> rejected the assessec's claim of deduction of surtax and the Commissioner (Appeals), following the Tribunal Special Bench, Bombay decision in <ORG> v. <ORG> [1983] 3 SOT 384, upheld the disallowance. <CITATION>  144 ITR 317 (Cal.), <CITATION>  159 ITR 431 (Ker.) and <CITATION>  26 Taxman 187 (Mad.), similar view has been taken. We, accordingly, uphold the orders of lower authorities on this point.

74. In the result, the appeal is partly allowed.


PETITIONER: T.N. GODAVARMAN THIRUMULPAD,ENVIRONMENT AWARENESS FORUM Vs. RESPONDENT: UNION OF INDIA & ORS., STATE OF J & K & ORS. DATE OF JUDGMENT: 15/04/1998 BENCH: A.S. ANAND, B.N. KIRPAL ACT: HEADNOTE: JUDGMENT:

WITH W.P. (C) No. 171/96 THE 15TH DAY OF JANUARY, 1998 Present:

Hon'ble the Chief Justice Hon'ble Mr. Justice <NAME> Hon'ble Mr. Justice <NAME> Mr. <NAME>, Attorney General, Mr. <NAME>, <NAME>, Advocate, General Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME><NAME>, Mr. <NAME> Mr. <NAME>, Mr. <NAME>

<NAME>., Mr. <NAME>, Sr. Advocates, Mr. <NAME>, Ms. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME> Mr. <NAME>, Ms.<NAME>, Mr, <NAME>, Ms.<NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mrs. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Ms.<NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME> Ms. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr.<NAME>, Mr. <NAME>, Mr. <NAME>. Ms. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME> Mr. <NAME>, Ms. <NAME>, Mr. <NAME>, Ms. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME> , Mr.<NAME>, Mr. <NAME>, Mr. <NAME>, Ms. <NAME>, Mr. <NAME>, Ms. <NAME>, Ms <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr. <NAME>, Ms. <NAME>, Ms. <NAME>, Mr. <NAME>, Mr. <NAME>, Mr.<NAME>, Mr. <NAME>, Mr. <NAME>, Advocates with them for the appearing parties.

O R D E R The following order of the Court was delivered: W I T H WRIT PETITION (C) NOT. 171 OF 1996 Learned Attorney General submits that the perception of <ORG> is as under:

1. It has been estimated by the <ORG> that about 1.20 lakhs cubic meters of illicitly felled seized timber, belonging to the State Governments is lying in the forests and depots for varying periods of time between 1 to 2 years and is thereby getting degraded on account of decay and rotting of the wood. It is necessary to dispose it off at the earliest to minimise any further loss in the monetary value. There is, in addition, considerable quantity of timber claimed by the private industry and local people. In view of the approaching monsoon season (April 98) all such timber needs to be disposed off with urgency to save further loss in quality, as also in value, albeit with proper checks and balances.

2. Given the weak infrastructure in the North-Eastern region, it does not seem feasible to transport such huge quantities of timber for auction in markets outside the region in a short time. Moreover, there would be uncertainty of the response in timber markets far away from the source of timber which has been subject to elements of degradation in varying degrees. There is also the likelihood of local resentment, in an otherwise sensitive area, if all such material is removed from the region without processing and value addition, which could be conceived as creating an adverse effect on the region's economy.

3. Even though the proliferation of wood-based industries has been the main cause of degradation of forests in the North-Eastern States, considering the extent of forests (64% of the geographical area) and the dependence of the local people on the forest resources in the region it is neither feasible, nor desirable, to ban completely either the timer trade or running of the wood based industries. However, their numbers and capacities need to be regulated qua the sustainable availability of forest produce and they are also required to be relocated in specified industrial zones. Moreover, the industrial requirements have to be subordinated to the maintenance of environment and ecology as well as bonafide local needs.

4. There shall be no fresh fellings in the forests belonging to the <ORG>, District and Regional Councils till the disposal of their existing stocks of legal and illegal timber.

5. In view of the multidimensional issues impinging upon forest protection, foolproof institutional arrangements need to be put in place, and made functional under the strict supervision of <ORG> (<ORG>). Technical backstopping in the forestry matter will be provided by <ORG> by opening a separate cell in the <ORG> under an officer of the rank of <ORG> and starting a satellite office of <ORG> at Shillong.

We appreciate the perception of <ORG> as reflected by the learned Attorney General.

We have heard the amicus curiae, the learned Attorney General and learned counsel for North-Eastern States. In view of the report of <ORG> and taking into account the factors which require an order to be made by the <ORG> for disposal of the felled timber and ancillary matters which are lying in the North-Eastern States, we consider it appropriated to make the following order:-

1. Disposal o timber shall commence only after the concerned Principal Chief Conservator of Forests irrevocably certifies that inventorisation of all felled timber in the State has been completed.

2. As a first measure all inventorised timber, including seized timber lying in the forests should be immediately transported to specified forest depots.

3. All illegal/illicit timber found in possession of an offender or abandoned in the forest shall be confiscated to <ORG> and shall be disposed off in accordance with the procedure to be adopted for disposal of Government timber.

4. Out of the seized timber, logs found suitable for manufacture of veneer and plywood shall be processed by the State Governments within their own factories and by hiring such facilities. The finished product can be marketed freely.

5. The remaining timber belonging to <ORG> and District Councils shall be first offered for sale to <ORG> Departments for their bonafide official use and the rest shall be sold in public auction or through sealed tenders after fixing floor price by an Expert Committee with representative from the <ORG>. Private timber owners whose stocks have been cleared by <ORG> shall have the option of selling the timber either in the auctions organised by the State Forest Departments/Forest Development Corporations or directly.

6. The State Governments shall formally notify industrial estates for locating the wood based industrial units in consultation with <ORG>.

7. Timber as per inventory cleared by <ORG> may be allowed to

(a) be converted/utilised if the unit is located within the notified industrial estate. As the relocation in proposed industrial estates may take some time, existing units with only legal stocks may convert this timber, as one time exception, notwithstanding anything contained in para 12 hereunder, till such stocks last subject to the maximum period as per the norms prescribed by <ORG> (vide their III report) or six months whichever is less. Any stock remaining thereafter shall vest in the state Government. However, fresh trees/Timber will be allotted to these units only when they start functioning within the designated industrial estates. The territorial Deputy Conservator of Forests/Divisional Forest Officer shall be responsible for ensuring that such units process the legal stocks only and will closely monitor the various transit permits (inward and outward) and maintenance of the prescribed records. All such records shall be countersigned (with date) by an officer not less than the rank of an Assistant Conservator of Forests.

(b) allowed to be sold to other units which are located in these industrial estates subject to the condition that such transactions are routed through an authority notified/constituted by the Principal Chief Conservator of Forests.

(c) The state Governments shall ensure disposal of illegal timber before permitting the conversion/disposal of legal/authorised timber available with the wood based industries.

8. Transportation of auctioned timber (as well as legal timber) including sawn timber outside the North-Eastern Region shall only be done through railways under the strict supervision of <ORG>. <ORG> shall give Priority for Providing rakes/wagons for such transportation.

9. Modalities for transportation of timber/timber products and alternative modes in case of difficulties in transportation by <ORG>, will be worked out by the State Governments in concurrence of <ORG>.

10. Existing inventorised stock of timber originating from plantations in private and community holdings in the States of Meghalaya, Mizoram, Tripura, Manipur and Nagaland may be disposed of by their owners under the relevant State laws and rules. In States where such laws and rules do not exist, the necessary laws and rules may be framed within six months.

Pricing of Timber

11. The state Governments shall ensure that timber/forest produce is supplied to industries including Government Undertakings, at full market rate. The existing royalty shall be reviewed and revised upwardly by a committee constituted under the Chairmanship of Principal Chief Conservator or Forests with representatives from the concerned Departments and shall also include a representative of ministry of Environment and forest. The prices of timber for which royalty has not been realized in full shall also be reviewed by this committee and the concerned industry shall be required to pay the revised price or the royalty (including surcharge, fee etc.,) whichever is higher after deducting the part royalty already paid.

Licensing

12. Licenses given to all wood based industries shall stand suspended.

13. Wood based industries which have been cleared by <ORG> without any penalty shall have the option to shift to industrial estates which shall be identified by the states within 45 days and developed within six months thereafter.

14. Units which have been penalised because they were found to exceed normal recovery norms, but were within 15% of the said norms, will have a right to approach <ORG> on or before 9th February 1998. <ORG> shall examine all relevant material, in particular the income tax and excise records for the preceeding three years. <ORG> shall dispose of all such applications within 45 days thereafter and such mills may be granted licence if <ORG> finds that it is not against public interest so to do.

15. nits which have not furnished details/information to <ORG> so far or which have not been cleared by <ORG>, shall not be granted any licence and the stock in their custody if any, shall be confiscated to the state <ORG>. In case of leased mills belonging to corporations/trusts/cooperative societies owned/controlled/managed by the State <ORG> and where the lessees have been penalised by <ORG>, the leases shall stand revoked. Such mills shall, however, be eligible for relicensing subject to the condition that these mills are not leased out in future except to a entity fully owned by the <ORG>.

16. Units who do not want to shift to the designated industrial estates shall be allowed to wind up as per law.

17. Henceforth, licenses of units shall be renewed annually only in those cases where no irregularity is detected.

18. There shall be a complete moratorium on the issue of new licenses by the State Governments or any other authority for the establishment of any new wood based industry for the next five years after which the situation shall be reviewed with the concurrence of <ORG>.

19. Number of wood based industries shall be determined strictly within the quantity of timber which can be felled annually on sustainable basis as determined by the approved working plans from time to time . If t is found that units after relocation in industrial estate have excess capacity then their capacities shall be reduced pro rate to remain within the sustainable levels.

Forest Protection

20. An action plan shall be prepared by the Principal Chief Conservator of Forests/Chief Forest Officer for intensive patrolling and other necessary protective measures to be undertaken in identified vulnerable areas and quarterly report shall be submitted to <ORG> for approval. The approved plan together with the modifications, if any, shall be acted upon.

21. To ensure protection of the forest wealth the forest officers in the North Eastern States may be empowered with authority to investigate, prosecute and confiscate on the lines of the powers conferred on the forest officers in many other States in the country.

22. The State Government shall be responsible for providing all facilities including security and police force to strictly enforce forest protection measures to stop illicit felling, removal and utilisation of such timber. The Chief Secretary shall review the various matters concerning forest protection and development in his State at least once every six months with senior forest officers upto the rank of Conservator of Forests. Regional Chief Conservator of Forests of <ORG> shall be invited to all such meetings. <NAME>

23.Working Plans for all forest division shall be prepared by the Sate Governments and got approved from <ORG>. Forest working shall be carried out strictly in accordance with the approved prescriptions of the working plans. The working plans should be prepared within a period of two years. During the interregnum the forests shall be worked according to an annual felling programme approved by the <ORG> which shall be incorporated in the concerned working plan. In case a working plan is not prepared within this time frame, future fellings will remain suspended till the regular working plan is prepared and got approved.

24. The forests under the District, Regional and Village Councils shall be worked in accordance with working schemes which shall specify both the programme for regeneration and harvesting and whose period shall not be less than 5 years.

25. The maximum permissible annual yield in the ad interim measures suggested above, shall not exceed the annual harvestable yield determined by <ORG>. The plantation schemes raised on private and community holdings shall be excluded from these requirements but shall be regulated under respective <ORG> rules and regulations.

26. The States shall identify ecologically sensitive areas in consultation with leading institutions like <ORG>, <ORG>, <ORG>, <ORG>, leading NGOs. etc., and ensure that such areas are totally excluded from any kind of exploitation. The minimum extent of such areas shall be 10% of the total forest area in the State.

Action against officials

27. The State Government shall identify within 45 days all those forest divisions where significant illegal fellings have taken place and initiate disciplinary/criminal proceedings against those found responsible. The first action taken report (ATR) in this regard shall be submitted to <ORG> within three months which shall be followed by quarterly reports (QRs.) till the culmination of the matter.

General

28. Timber extraction in forests irrespective of ownership, except in private plantations, shall be carried out by a State agency only. The States shall endeavor to adopt pattern obtaining in the State of Himachal Pradesh as described in para 2.5.3 of <ORG>.

If there be any local laws/customs relating to the forest in any State. the concerned State Government may apply to this Court for the needed modification, if any, with alternative proposal.

29. The penalties levied on the wood based industries as ordered by <ORG> shall constitute the revolving fund to meet the expenses involved in collection and transportation of seized illegal timber. These can be augmented by utilising the funds generated by the initial sales of illegal timber already available in the forest depots.

30. Each State shall constitute a State level Expert Committee for matters concerning the preparation of working plans, their implementation, development of industrial estates, shifting of industrial units to these estates, rules and regulations regarding the grant and renewal of licenses to wood based industry and other ancillary matters, under the chairmanship of principal Chief Conservator of forests and with a nominee of <ORG> as one of its members. Any decision of this committee which is not acceptable to <ORG> shall be referred to <ORG>.

31. The existing permit system in Arunachal Pradesh shall stand abolished. <ORG> may provide financial assistance in case or kind in the form of timber only for the bonafide use of the local tribals alone. Such concessional timber shall not be bartered or sold. Felling of trees for such purpose shall be carried out only by Government agency.

32. The total sale proceeds from the sale of seized timber, as well as timber products manufactured and disposed by <ORG> (vide para 4) and penalties would be credited to <ORG>. Out of this, the <ORG> shall utilise one half of the amount for as assistance to the tribals. population and as assistance to the tribals. The remaining one half of the total sale proceeds, after deduction of the expenses therefrom, would go to the <ORG> coffers for other developmental activities in the <ORG>.

33. The States shall ensure that sufficient budgetary provisions are made for the preservation of biodiversity and protection of wildlife.

34. To ensure that timber/forest produce smuggled across the border may not be used as a cover for trade in illegal timber, it is directed that all such timber seized by <ORG> should not be redeemed in favour of individuals who are smuggling it but should be confiscated and handed over to the concerned <ORG> along with offenders, vehicles, tools and implements for prosecution under the relevant acts.

35. For the proper and effective implementation of these order, <ORG> will have the liberty to issue suitable directions consistent with this order.

36. Action taken report be filed by each State Government and <ORG> every two months.

37. Liberty to apply for modification/clarification in case of need.

(NOTE: In this order the term "State Government" would include District council also except where the context implies otherwise.)


PETITIONER: <NAME> Vs. RESPONDENT: THE STATE OF MADRAS.UNION OF INDIA AND OTHERS-Interveners. DATE OF JUDGMENT: 30/03/1953 BENCH: <NAME>, B.K. BENCH: <NAME>, B.K. <NAME>, NATWARLAL H. SASTRI, <NAME> (CJ) BOSE, VIVIAN HASAN, GHULAM CITATION: 1953 AIR 274 1953 SCR 677 CITATOR INFO : R 1955 SC 661 (93,147) RF 1958 SC 452 (14,26) RF 1958 SC 468 (6,14,17) R 1958 SC 560 (14,32) R 1959 SC 887 (16) RF 1961 SC 347 (20) RF 1961 SC1065 (4) R 1963 SC1207 (42,50) R 1965 SC 161 (8) RF 1966 SC 376 (5) F 1985 SC1034 (15) R 1988 SC2031 (9) ACT: Madras Sales Tax Act (IX of 1939), Ss. 2, 8 (before amendment of 1947)-" Sale within the province", meaning of- Levy of tax on sales where property in the goods passed outside the province-Legality-Provincial <ORG>- Territorial jurisdiction. HEADNOTE: Under the Madras Sales Tax Act, 1939, as it stood before it was amended by the Madras Act XXV of 1947,the mere fact that the contract of sale was entered into within the Province of 88 678 Madras did not make a transaction which was completed in another province where the property in the goods passed, a sale within the Province of Madras and no tax could be legally levied upon such a transaction under the provisions of the Act. Though <ORG> could not pass a taxation statute which would be binding on any other part of India it was quite competent for a province to enact a legislation imposing taxes on transactions concluded outside the province provided there was a sufficient and real territorial nexus between such transactions and the taxing province. The title and preamble, whatever their value might be as aids to the construction of a statute, undoubtedly throw light on the intention and design of the <ORG> and indicate the scope and purpose of the legislation itself. It is a settled rule of construction that to ascertain the legislative intent all the constituent parts of a statute are to be taken together and each word phrase or sentence is to be considered in the light of the general purpose and object of the statute. Judgment of <ORG> reversed. JUDGMENT:

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 92 of 1952.

Appeal under articles 132(1) and 134(1) (c) of the Constitution of India from the Judgment and Order dated the 29th August, 1952, of <ORG> (<NAME> and <NAME>) in Criminal Appeal No. 129 of 1952 arising out of the-order dated the 25th February, 1952, of <ORG>, Egmore, Madras, in C. T. No. 1358 of the Calendar for 1950.

<NAME> (<NAME>, with him) for theappellant.

<NAME>, Advocate- General of Madras (<NAME> and <NAME> with him) for the respondent. <NAME>, Attorney-General for India (<NAME> and <NAME>, with him) for <ORG>. <NAME> for the State of Bihar.

<NAME>, Advocate-General of Punjab (<NAME>, <NAME>, with him) for the State of Punjab.

<NAME>, Advocate-General of Mysore (<NAME>, with him) for the State of, Mysore.

<NAME> for the State of Uttar Pradesh. <NAME>, Advocate-General of Travancore- Cochin (<NAME> and <NAME>, with him) for the State of Travancore Cochin.

<NAME> for the State of Madhya Pradesh. <NAME> for <ORG> (Intervener No. 8).

1953. March 30. The Judgment of the Court was delivered by <NAME> appeal, which has come before us on a certificate granted by <ORG> under articles 134(1) (e) and 132(1) of the Constitution, is directed against an appellate judgment of <ORG> of <ORG>, passed in Criminal Appeal No. 129 of 1952, by which the learned Judges affirmed an order of the Seventh Presidency Magistrate, Madras, dated February 25, 1952, convicting the appellant of an offence punishable under section 15 of the Madras General Sales Tax Act and sentencing him to pay a fine of Rs. 1,000; in default to suffer imprisonment for a period of 3 months. The appellant is a partner of a firm of merchants called <ORG> which has its head office in the city of Madras and carries on the business of selling and purchasing groundnut oil, sago and kirana articles. For the period-April 1, 1947, to December 31, 1947-the company was assessed to sales tax under the Madras Act IX of 1939 for an amount of Rs. 37,771 annas odd on a total turnover of Rs. 37,75,257 and for failure to pay the same were instituted against him under the provision of section 15 of the Act which resulted in his conviction as mentioned above. The course of business, which is usually followed by the company and which was actually followed during the period for which assessment is made, is as follows: The company receives orders-in its Madras office from' Calcutta merchants for supply of certain articles. These articles are purchased in the local markets and they are despatched to Calcutta by rail or steamer. The railway receipts and bills of lading are taken in the name of the vendor company and so also are the insurance policies, and they are sent to the company's bankers in Calcutta who deliver the same to the consignees on payment of prices and other charges. The sole point that requires consideration is, whether in these circumstances the sale transactions were liable to be taxed under the General Sales Tax Act of Madras?

Before <ORG> both the parties seem to have accepted the position that if on the facts stated above, which were not disputed by either side, the sales could be hold to have taken place within the Province of Madras, the tax could legitimately be levied on them but not otherwise. The parties differed, however? as regards the test to. be applied, in determining whether the sales did take place within the Province of Madras or not. On behalf of the appellant the contention raised was that the place of sale in regard to all the transactions was Calcutta, as the property in the goods sold admittedly passed to the purchasers in that city. The contention of the respondent State on the other hand was that the true test for determining the locality of the sale was not where the property in the goods sold passed, but where the actual transaction was put through. As the company had its head office in the city of Madras, its accounts were maintained there and the goods were delivered to the common carrier in that city, the sale, according to the respondent, must be deemed to have taken place in Madras even though the property in the goods sold passed outside the province. <ORG> accepted this contention of the respondent State. In the opinion of the learned Judges, the word "sale" has both a legal and a popular meaning. In the legal sense, it imports passing of property in the goods and it is in this sense that the word is used in the Sale of Goods Act . 'In the popular sense, however, it signifies the transaction itself which results in the passing of property. As the object of the <ORG> in the Sales Tax Act is to impose a tax on the occasion of the sale, it is immaterial that the sale has been completed outside the province. The place where the property passes is, it is said, a matter of no concern to the taxing author- ity and in such context the popular meaning of the word is more appropriate and should be adopted. The further contention raised on behalf of the appellant, that if this view was accepted, the sales tax would have to be regarded as being extra-territorial, in its operation and as such ultra vires the Provincial <ORG>, was repelled by <ORG> on the authority of the well known decision of <ORG> in Wallace Brothers etc., & <CITATION> (1). It is the propriety of this decision that has been challenged before us and the contentions raised by Mr. <NAME>, who appeared in support of the appeal, are of a two-fold character : The learned counsel has argued in the first place that the Provincial <ORG> functioning under the Government of India Act, 1935, was constitutionally incompetent to enact a legislation of this character which according to the interpretation put upon it by <ORG> is capable of operating on sale transactions concluded outside the province. The other contention is that on a proper construction of the relevant provisions of the Madras Sales Tax Act <ORG> ought to have held that they do not authorise the imposition of sale tax in respect of a transaction of sale where property in the goods sold passes outside the province. The first contention appears to us to be unsustainable. Section 100 (3) of the Government of India (1) (1948] F.C.R. I (P.C.).

Act, 1935, upon which Mr.<NAME> relied and which corresponds to article246(3) of the Constitution runs as follows :

``Subject to the two preceding sub-sections, <ORG> has and <ORG> has not, power to make laws for a province or any part thereof with respect to any of the matters enumerated in List II in the Second Schedule."

The entry in the Provincial List that is relevant for our purpose is Entry No. 48 and that speaks of " taxes on the sale of goods and on advertisements." The entry does not suggest that a legislation imposing tax on sale of goods can be made only in respect of sales taking place within the boundaries of the province ; and all that section 100(3) provides is that a law could be passed by <ORG> for purposes of the province itself. It admits of no dispute that <ORG> could not pass a taxation statute which would be binding on any other part of India outside the limits of the province, but it would be quite competent to enact a legislation imposing taxes on transactions concluded outside the province, provided that there was sufficient and a real territorial nexus between such transactions and the taxing province. This principle, which is based upon the decision of <ORG> in <ORG>. & <CITATION> (1) has been - held by this court to be applicable to sale tax legislation, in its recent decision in the Bombay Sales Tax Act case (2) and its propriety is beyond question. As a matter of fact, the legislative practice in regard to sale tax laws adopted by the Provincial Legislatures prior to the coming into force of the Constitution has been to authorise imposition of taxes on sales and purchases which were related in some manner with the taxing province by reason of some of the ingredients of the transaction having taken place within the province or by (1)  F.C.R. I (P.C.).

(2) The State of Bombay d Another v. <ORG> & Others-Civil Appeal NO. 204 Of 1952.

reason of the production or location of goods within it at the time when the transaction took place. If in the Madras Sales Tax Act the basis adopted for taxation is the location of the place of business or of the goods sold, within the Province of Madras, undoubtedly it would be a valid piece of legislation to which no objection on constitutional grounds could be taken. The controversy, therefore, narrows down to the short point as to what exactly has been adopted as the basis of the levy of sale tax by <ORG>. This leads us to the question of interpretation of the statute which is involved in the second point raised by Mr. <NAME>.

It is a settled rule of construction that to ascertain the legislative intent, all the constituent parts of a statute are to be taken together and each word, phrase or sentence is to be considered in the light of the general purpose and object of the Act itself. The title of the Madras Sales Tax Act describes it to be an Act, the object of which is to provide for the levy of a general tax on the sale of goods in the Province of Madras and the very same words are repeated in the preamble which follows. The title and preamble, whatever their value might be as aids to the construction of a statute, undoubtedly throw light on the intent and design of the <ORG> and indicate the scope and purpose of the legislation itself. The title and preamble of the Madras Sales Tax Act clearly show that its object is to impose taxes on sales that take place within the province, though these words do not necessarily mean that the property in the goods sold must pass within the province. The expression "sale of goods " is a composite expression consisting of various ingredients or elements. Thus, there are the elements of a bargain or contract of sale, the payment or promise of payment of price, the delivery of goods and the actual passing of title, and each one of them is essential to a transaction of sale though the sale is not completed or concluded unless the purchaser becomes the owner of the property. The question is-what element or elements have been accepted by the Madras <ORG> as constituting a sale in the province upon which it is the object of the statute to levy tax. Section 2(h) gives the definition 'of "sale" and it is defined as meaning, every, transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge."

Unmistakably the stress is laid in this definition on the element of transfer of property in a sale and no other. The language gives no indication of the popular meaning of sale in which according to <ORG>, the word was used. It is to be noticed that there was no provision by way of explanation of this definition, in operation, at the material time to indicate in what cases a sale would be regarded as taking place within the Province of Madras, although the property in the goods sold did pass outside the boundaries of the province. Such explanations were added by the Madras Act XXV of 1947 and one of these explanations, namely explanation 2, provides as follows : " Notwithstanding anything to the contrary in the Indian Sale of Goods Act , 1930, the sale or purchase of any goods shall be deemed, for the purposes of this Act, to have taken place in this Province, wherever the contract of sale or purchase might have been made-

(a) if the goods were actually in this Province, at the time when the contract of sale or purchase in respect thereof was made, or

(b) in case the contract was for the sale or purchase of future goods by description, then, if the goods are actually produced in this Province at any time after the contract of sale or purchase in respect thereof was made." It would be clear from this that these transactions were not considered by the <ORG> to constitute sales within the Province of Madras under the definition itself, but by resort to a legal fiction they were declared to be so, notwithstanding any provision in the Sale of Goods Act to the contrary which it was assumed, would otherwise be applicable,. The explanation further shows that in defining "sale" in section 2(h) , the <ORG> had in mind a sale in the Province of Madras and as these words occur in the title and preamble of the Act it was not deemed necessary to repeat them in the definition or the charging sections. Section 3 is the charging section in the Act and it provides for the levy of a tax on the total turnover of a dealer for a particular year. A "turnover" is defined to be the aggregate amount for which goods are either bought or sold. The charging section purports to levy a tax on the sale of goods and the tax is on the sale of goods in the Province of Madras as defined in section 2(h) of the Act read in the light of its title and preamble. In our opinion, the mere fact that the contract for sale was entered into within the Province of Madras does not make the transaction, which was completed admittedly within another province, where the property in the goods passed, a sale within the Province of Madras according to the provisions of the Madras Sales Tax Act and no tax could be levied upon such a transaction under the provisions of the Act. A contract of sale becomes a sale under the Sale of Goods Act only when the property in the goods is transferred to the buyer under the terms of the contract itself. The presence of the goods within the province at the time of the contract would undoubtedly make the sale, if subsequently completed, a sale within the province by reason of the explanation added by Act XXV of 1947 ; but as this explanation was not in operation during the relevant period with which we are concerned, the assessment of sale tax, in our opinion, on the transactions during this period is illegal and not warranted by the provisions of the Act. It is worthwhile to mention in this connection that except for the period in question no tax was attempted to be levied on similar transactions of the appellant by the taxing authorities in any of the  previous years,though the Act came into operation as early as the year 1939. It is not disputed also that the company is paying sale tax on its transactions with the Calcutta merchants since the explanation added by Act XXV of 1947 came into force. 'In our opinion, the appeal should be allowed and the conviction and sentence passed by the courts below should be set aside. The fine and sale tax, if actually paid, should be refunded to the appellant.

Appeal allowed.

Agent for the appellant: <NAME>. Agent for the respondent (the State of Madras), the Union of India, and the States of Punjab, Mysore, Madhya Pradesh and Travancore Cochin (Interveners): <NAME>.

Agent for the State of Bihar: <NAME>.

Agent for the State of U. P. <NAME>.

Agent for Intervener No. 8: <NAME>.