<NAME>, J.

These two appeals are filed by the Commissioner (Appeals), Calicut, against two separate orders of the same date, 8-4-1999, passed by the <ORG>, Cochin Bench in ITA Nos. 128 & 151/Coch/1995 in respect of the assessment year 1991-92 and in ITA Nos. 205/Coch/1995 in respect of the assessment year 1990-91 in the case of the very same assessee who is the respondent in both these cases. The matter arises under the Income Tax Act , 1961 (hereinafter referred to as the Act). Since common questions of law are involved in both these cases they are disposed of by this common judgment.

2. In ITA No. 7 of 2000 the appellant had formulated three questions of law and this court ordered notice on the following three questions :

"1. Whether, on the facts and in the circumstances of the case and also in view of the fact that remittance had not been made before the due date, the assessee is entitled to claim deduction of the sum of Rs. 11,25,965 as gratuity premium?

2. Whether, on the facts and in the circumstances of the case, the <ORG> is right in law in holding that the provisions of section 43B are not applicable in respect of claim for the deduction of premium payable towards gratuity to which section 40A(7)(b) applies?

3. Whether, on the facts and in the circumstances of the case and in the light of the section 43B , a provision towards the contribution to an approved gratuity fund is allowable under section 40A(7)(b) of the Income Tax Act?"

3. Similarly in ITA No. 37 of 2000 the appellant had raised the following six questions and this court had ordered notice on all those questions "1. Whether, on the facts and in the circumstances of the case and also in view of the fact that remittance had not been made before the due date, the assessee is entitled to claim deduction of the sum of Rs. 9,714 as gratuity premium?

4. Whether, on the facts and in the circumstances of the case and on an interpretation of section 43B read with Explanation to clause (va) of section 36 , the assessee is entitled to claim deduction of the contribution to the ESI fund for the assessment year 1990-91 on actual payment basis if the payment was not made before the due date as defined in the Explanation to section 36(1)(va) ?

5. Whether, on the facts and in the circumstances of the case, the <ORG> is right in law in holding that the due date as defined in the Explanation to clause (va) of section 36 has application only in respect of any sum received by the assessee as contribution to the provident fund, ESI, etc. which the assessee as employer has to remit to the respective account?

6. Whether, on the facts and in the circumstances of the case, the assessees claim for deduction is to be considered under section 43B(b) without reference to the second proviso?"

4. However, essentially the questions of law raised in both these appeals are with regard to the claim for deduction of a provision towards the contribution to an approved gratuity fund. However, in ITA No. 37 of 2000 there is one more question with regard to the claim for deduction of the contribution to the ESI fund. So far as the claim for deduction of the provision towards the contribution to the approved gratuity fund, according to the assessee, it is an allowable deduction in view of the provisions of section 40A(7)(b) of the Act. But, according to the department, the deduction is subject to the provisions of section 43B as per which the deduction is allowable only if the gratuity is paid within the due date for payment provided under the Payment of Gratuity Act or under the Contract Act . Here, it must be noted that both section 40A(7) and section 43B have used the expression notwithstanding. Therefore, the question to be decided, in this, case, is as to which of these two provisions has got an overriding effect. If section 40A(7) is subject to section 43B the deduction of the provision towards the contribution to the approved gratuity fund cannot be allowed unless there is actual payment, that too within the due date provided there is a due date for such payment. On the other hand, if notwithstanding the provisions of section 43B , section 40A(7)(b) has got an overriding effect then, subject to fulfilment of the conditions specified in section 40A(7)(b) , the provision is an allowable deduction.

5. The brief facts are as follows : The respondent-assessee is a limited company engaged in manufacturing tiles, ridges, etc. The assessment years concerned, as already noted, are 1991-92 and 1990-91, the relevant previous year ended 31-3-1991 and 31-3-1990, respectively. Since the detailed reasons so far as the questions involved in both these cases are dealt with in the orders for the assessment year 1991-92 which is the subject-matter of ITA No. 7 of 2000, the facts of the said appeal is mentioned first. For the assessment year 1991-92 previous year ended 31-3-1991 the respondent-assessee filed a return of income on 30-12-1991 admitting therein a net loss of Rs. 5,10,532. Subsequently, a revised return was filed on 8-5-1992 admitting a net loss of Rs. 8,45,400. The case was selected for scrutiny and a notice under section 143(2) of the Act was issued and, after affording opportunity to the petitioner, the assessment was completed. In the said assessment the assessing officer disallowed the claim for deduction of a sum of Rs. 11,25,965 being contribution towards group gratuity-cum-life insurance premium which is covered by section 43B of the Income Tax Act. The assessing officer after conducting enquiry with the <ORG> authorities ascertained that a sum of Rs. 11,25,965 was due to be paid by the assessee on 1-10-1990 and by availing the grace period of 30 days the assessee-company should have paid the said premium to the <ORG> on or before 30-10-1990 and on verification of the details, it was found that the assessee had paid the said sum only on 7-6-1991 and on 25-10-1991. Accordingly to the assessing officer, since the said amounts were not paid on the due date provided under section 43B read with section 36(va) Explanation the same is not to be allowed as deduction. The assessing officer also relied on the Board Circular No. 550 issued in the year 1989.

6. Similarly for the assessment year 1990-91 the original assessment under section 143(3) was completed on 20-1-1993. This was reopened under section 147 of the Act. In response to notice under section 148 the assessee furnished a return of income on 20-5-1994 admitting a loss of Rs. 87,250. Though the assessment was reopened mainly for the purpose of predetermining the capital gains based on the value of the landed properties, in the reassessment proceedings the assessing officer also considered the disallowance in respect of ESI payments amounting to Rs. 12,712 paid not on due date. According to the assessing officer the said amount ought to have been paid on or before 20-4-1989 but was actually paid on 8-5-1989 only. Hence, the said sum was disallowed under section 43B . In the recomputation of total income a sum of Rs. 9,714 being the provision for payment to the gratuity fund originally allowed was also included.

7. The assessee being aggrieved by the assessment orders for the years 1991-92 and 1990-91 filed appeals before the Commissioner (Appeals), Calicut. The said appeals were disposed of by the appellate authority by two separate orders dated 28-11-1994 for the assessment year 1991-92 and order dated 23-12-1994 for the assessment year 1990-91. The first appellate authority took the view that a sum of Rs. 11,12,965 being the premium payable to the <ORG> under the group gratuity-cum-life insurance premium for the year ended 31-3-1991 is liable to be deducted. According to the first appellate authority no due date has been prescribed under section 36(1)(v) as contrasted with section 36(1)(va) read with section 2(xxiv) and section 43B . In appeal filed by the department against the said order the <ORG> considered the question as to whether the assessee had paid the premium within the due date prescribed under Explanation below clause (va) of sub-section (1) of section 36 with reference to the policy under the group gratuity scheme produced by the assessee. The <ORG> found that under the policy the premium was payable before 30-3-1990 and that since the remittances were made only on 7-6-1991 and 25-10-1991 it was held that the Commissioner (Appeals) was not correct in stating that the remittance had been made before the due date under the group gratuity scheme. The <ORG> then considered the question whether in such a case the non-payment of the premium within the accounting year can be a ground for disallowance by invoking section 43B . The <ORG> relying on a decision of the Jaipur Bench of the <ORG> in <CITATION> (1998) 65 ITD 163 (Jp)(TM) held that the provisions of section 43B are not applicable in respect of the claim for deduction of premium payable towards gratuity to which section 40A(7)(b) applies. The <ORG> accordingly held that the assessing officer was not correct in making the disallowance under section 43B in respect of the provisions for the purpose of payment under the gratuity scheme. The <ORG> accordingly upheld the order of the Commissioner deleting the disallowance for the reason that section 43B could not be applied in a case of deduction claimed under section 40A(7)(b) .

8. The first appellate authority in the appeal for the year 1990-91 held that there is no time-limit for payment of premium on policy under the group gratuity scheme as in the case of contribution to provident fund or for other funds for the welfare of the employees and it is enough if the premium is paid before the due date for filing the return of income in order to claim the deduction and that since the premium was paid on 9-8-1990, i.e., before the due date for filing return the disallowance was not justified. The first appellate authority also noted that for the assessment year 1991-92 he had deleted the additions for that year. So far as the disallowance of a sum of Rs. 12,712 under section 43B in respect of ESI contribution it was noted that the said sum was paid during the relevant previous year on 8-5-1989 and the contribution was claimed as a deduction in the year in which it was paid. The first appellate authority has held that in view of the fact that the payment had been made during the accounting year relevant to the assessment year 1990-91 the question of applying the provisions of section 43B does not arise. The <ORG> considered this issue in para 4 of the appellate order. The <ORG> noted that the assessing officer disallowed the claim for the amount payable under the group gratuity scheme for the reason that the amount was not actually remitted before the due date since the payment is seen made only on 9-8-1990 after the end of the previous year. The <ORG> relying on its own order in the case of the assessee for the year 1991-92 upheld the order of the Commissioner (Appeals) and dismissed the revenues appeal. The claim for deduction of ESI contribution of Rs. 12,712 was considered in para 5 of the appellate order. The <ORG> noted that the assessee had paid the said amount on 8-5-1989 during the relevant previous year, but the assessing officer was of the view that the payment was not made before the due date as defined in the Explanation below section 36(1)(va) and so the same was to be disallowed under section 43B . The <ORG> noted the contention of the revenue that the ESI payment was for the welfare of the employees and the same would fall under clause (b) of section 43B . The <ORG> after adverting to the Explanation to section 36(1)(va) and the provisions of section 2(xxiv)(x) observed that it is clear from the Explanation that the definition of due date as appearing in the Explanation is for the purpose of clause (va) only and that from a reading of section 43B with the said Explanation, it is clear that the second proviso imposes a condition of payment before the due date only in respect of any sum received by an assessee from its employees to which the provisions of section 2(xxiv)(x) apply. The <ORG> noted that in the present case contribution to ESI which the assessee has to make was as an employer and not the contribution of the employees and therefore, the claim for deduction of such contribution should be considered under section 43B(b) de hors the second proviso. The <ORG> held that since the assessee had paid the contribution before the end of the previous year, the assessee. is eligible for deduction on the basis of the actual payment.

9. Thus, as already noted, two issues arise for consideration, one with regard to the provision made for payment to the approved gratuity fund and the other regarding the claim for deduction of the contribution to the ESI fund on actual payment basis.

10. Let us now deal with the first issue. The assessee has claimed a deduction of Rs. 11,25,965 being contribution towards group gratuity-cum-life insurance premium in the assessment for the year 1991-92 and a sum of Rs. 9,714 for the assessment year 1990-91. Under section 36(1)(v) of the Act any sum paid by the assessee as an employer by way of contribution towards an approved gratuity fund credited by him for the exclusive benefits of the employees under an irrevocable trust is an allowable deduction. Similarly provision made in the profit & loss account for the estimated present value of the contingent liability properly ascertained and discounted on an accrued basis as falling on the assessee in the year of account could be deducted either under section 28 or under section 37 of the Act as observed by <ORG> in <CITATION> (1985) 156 ITR 585 (SC). However, section 40A of the Act provides for expenses or payments not deductible in certain circumstances. Sub-section (7)(a) provides that subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. Clause (b) provides that nothing in clause (a) shall apply in relation to (i) any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity that has become payable during the previous year. The case of the assessee is that by virtue of clause (b)(i) of sub-section (7) of section 40A the provision for contribution to the approved gratuity fund is an allowable deduction. This requires detailed consideration.

11. The stand of the revenue, as already noted, is that notwithstanding the provisions of section 40A(7)(b) of the Act, in view of the provisions of section 43B of the Act, unless the gratuity amount is paid within the due date no deduction of the contribution to the approved gratuity fund can be allowed. Let us now see the provisions of sections 40A(7) and 43B of the Act.

12. Section 40A(1) and 7(a) and (b)(i) reads as follows

12. Section 40A(1) and 7(a) and (b)(i) reads as follows "40A. Expenses or payments not deductible in certain circumstances.(1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession".

(7)(a) Subject to the provisions of clause (b), no deduction shall be allowed in respect of any provision (whether called as such or by any other name) made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason;

(b) Nothing in clause (a) shall apply in relation to

(i) any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year."

13. Section 43B of the Act excluding Explnations. 3 and 4 reads as follows :

"43B. Certain deductions to be only on actual payment.Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of "43B. Certain deductions to be only on actual payment.Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of

(a) any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or

(b) any sum payable by the assesses as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, or

(c) any sum referred to in clause (ii) of sub-section (1) of section 36 , or

(d) any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or <ORG> or <ORG> in accordance with the terms and conditions of the agreement governing such loan or borrowing, shall be allowed (irrespective of the previous years in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him :

Provided that nothing contained in this section shall apply in relation to any sum referred in clause (a) or clause (c) or clause (d) which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return..

Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36 , and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date.

Explanation 1.For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (a) or clause (b) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1-4-1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him.

Explanation 2.For the purposes of clause (a), as in force at all material times, "any sum payable" means a sum for which the assessee incurred liability in the previous year even though such sum might not have been payable within that year under the relevant law."

14. In view of the second proviso it is necessary to refer to the Explanation below clause (va) of sub-section (1) of section 36 "ExplanationFor the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employees contribution to the employees account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise."

15. Here, it must be noted that section 40A(7) was introduced for the first time by the Finance Act , 1975 (Act 25 of 1975) with retrospective effect from 1-4-1973 and section 43B was introduced by the Finance Act , 1983 (Act 11 of 1983) with effect from 1-4-1984. Section 40A says that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "profits and gains of business or profession". Similarly it must be noted that section 43B opens with a non obstante clause which provides that notwithstanding anything contained in any other provisions of this Act.

16. The scope of section 40A(7) of the Act was considered by <ORG> in <ORG> case (supra) reading as follows :

" Section 40A is in Chapter IV which deals with computation of total income. It is under the sub-heading of a group of sections dealing with the computation of profits and gains of business or profession. The said group of sections begin with section 28 and go up to section 40D . Section 40A is with the marginal note under the heading "Expenses or payments not deductible in certain circumstances". If the marginal note or heading is any indication, and it certainly is a relevant factor to be taken into consideration in construing the ambit of the section, then these payments mentioned therein are not deductible, according to the statute, in certain circumstances. Therefore, the heading of this section is a clear indication that certain payments and expenses which would be otherwise deductible would not be deductible except in certain circumstances indicated in the section. This is abundantly made clear by the non obstante expression used in sub-section (1) of section 40A . As noted before, the provisions of section 40A shall have effect notwithstanding anything to the contrary contained in any other provision of the Act. Payments of deductions or provision for deduction could have been eligible for deduction or could have been deducted either under section 28 or under section 37 of the Act. But the use of the non obstante expression makes it clear that if there is any legislative base dealing with the provision for gratuity, then the same would be applicable inspite of and notwithstanding any other provision of the Act. Read with the marginal notes of section 40A , the non obstante clause of sub-section (1) of section 40A has an overriding effect over the provisions of any other section by providing that the provisions of the section will have effect notwithstanding anything to the contrary contained in any other provision relating to the computation of income under the head "Profits and gains of business or profession". Expenditure or allowances which are deductible under any other provision relating to the head "Business or profession" will be disallowed in cases to which these provisions of the section apply. This sub-clause was inserted by the Finance Act , 1975, with retrospective effect from 1-4-1973".

17. <ORG> also observed that the intention of the legislature in enacting the provision of section 40A(7) would be apparent from the notes on clauses of the amendment where in para 46, after referring to the provisions of section 37(1) and section 36(1)(v) of the Act, it was observed, inter alia, as follows :

"A reading of these two provisions clearly shows that the intention has always been that deduction in respect of gratuities should be allowed either in the year in which the gratuity is actually paid or in the year in which contributions are made to an approved gratuity fund. A doubt has been expressed that the relevant provisions, as presently worded, do not secure the underlying objective and that a provision made by a taxpayer in his accounts in respect of estimated service gratuity payable to employees will be deductible in, computing the taxable income in a case where the provision has been made on a scientific basis in the form of an actual valuation. In order to remove uncertainty in the matter, it is proposed to specifically provide in the law that no deduction will be allowed in the computation of profits and gains of a business or profession, in respect of any reserve created or provision made for the payment of gratuity to the employees on retirement or on termination of employment for any reason. This restriction will, however, not apply in relation to a provision made for the purpose of payment of a sum by way of contribution towards an approved gratuity fund that has become payable during the relevant year, or for the purpose of meeting actual liability in respect of payment of gratuity to the employees that has arisen during such year".

18. <ORG> thereafter observed thus :

18. <ORG> thereafter observed thus :

"On a plain construction of clause (a) of sub-section (7) of section 40A of the Act, what it means is that whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees on their retirement or on the termination of their services would not be allowed as deduction in the computation of profits and gains of the year of account. The provision of clause (a) was made subject to clause (b). The embargo is on deductions of amounts provided for future use in the year of account for meeting the ultimate liability to payment of gratuity. Clause (b)(i) excludes from the operation of clause (a) contribution to an approved gratuity fund and amount provided for or set apart for payment of gratuity which would be payable during the year of account. Clause (b)(ii) deals with a situation where the assessee might provide by the spread-over method and provides that such provision would be excluded from the operation of clause (a) provided the three conditions laid down by the sub-clauses are satisfied.

19. Of course <ORG> in the said decision did not consider the effect of the provisions of section 43B inserted by the Finance Act , 1983 with effect from 1-4-1984, for, the assessment years concerned in the said case were 1973-74 and 1974-75.

20. Now, it would appear that there is conflict between the provisions of section 40A(7)(b) and section 43B insofar as both the provisions used the non obstante clause. It is significant to mention here that section 40A(7) was there in the Act when section 43B was inserted and even prior to 1-4-1984 from which date section 43B is given effect to. Thus, the question would be which of the two sections has got the overriding effect. <ORG> in <CITATION> . (1993) 199 ITR 714 (Cal) took the view that the provisions of section 43B have got the overriding effect over the provisions of section 40A(7) . According to <ORG> after the insertion of section 43B the provisions of section 40A(7) have no application and that, unless the conditions of section 43B are satisfied, the deduction cannot be allowed. In this context, it is also relevant to note that <ORG> in <CITATION> (1997) 228 ITR 343 (Gau) has taken the view that notwithstanding section 43B(b) in view of section 40A(7)(b)(i) it is not necessary that actual payment has to be made and that it is sufficient that the amount is earmarked for such payment.

21. Here, it must be noted that section 43B introduced by the Finance Act , 1983 with effect from 1-4-1984 provides that certain deductions are to be allowed only on actual payment. It deals with 5 categories of deductions. Clause (a) deals with any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force. Clause (b) deals with any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees. Clause (c) deals with any sum referred to in clause (ii) of sub-section (1) of section 36 . Clause (d) deals with any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or <ORG> or <ORG>, in accordance with the terms and conditions of the agreement governing such loan or borrowing. Clause (e) deals with any sum payable by the assessee as interest on any term loan from a scheduled bank in accordance with the terms and conditions of the agreement governing such loan. In respect of all those amounts section 43B says that it shall be allowed only in computing the income referred to in section 28 of that previous year in which the sum is actually paid by him. The first proviso deals with payments covered by clauses (a), (c), (d) or clause (e) with respect to which it is said that if the said amounts are actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and evidence of such payment is furnished by the assessee along with such return. The second proviso says that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36 . The Explanation refers to the due date which means the date by which the assessee is required as an employer to credit the employees contribution to the employees account in the relevant fund under any act, rule or order or notification issued thereunder or under any standing order, award, contract of service or otherwise.

22. The present case is covered by clause (b) of section 43B . Whether the second proviso and the Explanation to clause (va) of sub-section (1) of section 36 has application is also an issue.

23. <ORG> of this court had occasion to consider the scope of section 43B read with section 36(1)(va) Explanation in <CITATION> . (2000) 242 ITR 114 (Ker). That was a case regarding payment towards provident fund. The Division Bench considering the scope of the proviso to section 43B of the Act observed in the following terms : section 43B is relatable to payments actually made, the modality to be adopted in respect of payments of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees for getting deduction has been prescribed and a time-limit has been fixed and, only if payment was made during that period, deduction can be claimed. The proviso to section 43B lays down that the payment should be made before the "due date as defined in the Explanation below clause (va) of sub-section (1) of section 36 ". The expression "due date" means the time stipulated for payment and by virtue of the Explanation, "due date" means the date by which the assessee is required as an employer to credit an employees contribution to the employees account in the relevant fund and the amount is deductible only if the assessee credits the amount to the employees account in the relevant fund on or before the date by which he is legally or contractually required to do so. The right to deduction would be lost if the sum is credited after the due date. It is also observed that the legislature in its wisdom has incorporated the proviso and it cannot be said to be without a purpose.

24. Now, from the above discussion, the following aspects are clear : section 40A would have effect notwithstanding anything contained in sections 30 to 39 . Hence, for gratuity to be deductible under the Act, it must fulfil the conditions laid down in section 40A(7) . The deduction cannot be allowed on general principles or under any other section of the Act because sub-section (1) of section 40A makes it clear that the provisions of the section shall have effect notwithstanding anything to the contrary contained in any other provision of the Act relating to the computation of income under the head "Profits and gains of business or profession". Section 40A(7) says that no deduction is to be allowed, in the computation of the profits and gains of a business or profession, in respect of any provision made for the payment of gratuity to the employees on retirement or on termination of employment. Exception is provided under clause (b)(i) which says that the restriction is not to apply in relation to any provision made for the purpose of payment of a sum by way of contribution towards an approved gratuity fund that has become payable during the previous year or for the purpose of meeting actual liability in respect of payment. Thus, but for the provisions of section 43B enacted, the assessee would have been entitled to deduction of the provision for gratuity by virtue of section 40A(7)(b)(i) of the Act subject to fulfilment of the conditions specified therein. Section 43B introduced subsequent to the introduction of the provisions of section 40A(7) clearly provides that notwithstanding anything contained in any other provisions of this Act (which will clearly take in section 40A(7) also) a deduction otherwise allowable under this Act in respect of any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees shall be allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him only on computing the income referred to in section 28 of that previous year in which such sum is actually paid by him. This provision, it would appear, has the effect of taking away the provisions of section 40A(7)(b)(i) also. Thus, by virtue of this provision the benefit of deduction of gratuity payment towards the fund can be obtained only in the year in which the payment is effected to the said fund irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him.

25. If the second proviso to section 43B which deals with a situation covered by clause (b) of the said section is applicable then by virtue of the Explanation to section 36(1)(va) of the Act the payment should be made on or before the due date for payment of the contribution to the approved gratuity fund fixed in the contract of insurance. A Division Bench of this court in <CITATION> . (supra), which we have already referred to, had held as follows :

"The expression due date means the time stipulated for payment. As per the Explanation to clause (va) for the purpose of the clause, due date means the date by which the assessee is required as an employer to credit an employees contribution to the employees account in the relevant fund. The amount is deductible only if the assessee credits the amount to the employees account in the relevant fund on or before the date by which he is legally or contractually required to do so. The right to deduction would be lost even if the sum is credited after the due date. It cannot be an indefinite date left to the choice of the assessee. It is to be noted that under the main provision of section 43B of the Act, the payments made during the currency of the financial year relevant to the assessment year qualify for deduction in certain cases. But in the case of payments relating to provident fund, etc., stress has been made on payment within the due date. Therefore, it cannot be said that payment made beyond the due date also qualifies for deduction, in view of the prescription in the main provision itself. Had that been the legislative intent, there was no necessity to enact the proviso. The legislature in its wisdom has incorporated the proviso and it cannot be said to be without a purpose. There is nothing repugnant between the main provision and the proviso. They operate in different situations. The view of the <ORG> that payment having been made before the close of the financial year, qualifies for deduction is indefensible".

26. Another Division Bench to which one of us (<NAME>, J) was a party in the judgment dated 10-10-2002 in ITA No. 92 of 2000 considered the contention on behalf of the assessee that the aforesaid decision does not apply to the case of payment of employers contribution as the Explanation to section 36(va)(i) read with section 2(24)(x) of the Act refers to the employees contribution to the employees account in the relevant fund and not to the employers contribution. <ORG> after noting the aforequoted portion of the judgment in <ORG> case held that the said decision squarely applies to the case on hand without any distinction. This decision was followed by <ORG> in <CITATION> (2004) 187 CTR (Ker) 199. In the light of the above two decisions it is clear that the second proviso to section 43B read with the Explanation to section 36(1)(va) applies to a claim for deduction of gratuity premium also. In the instant case, the assessee admittedly did not make payment to the approved gratuity fund either during the previous year relevant to the assessment years concerned as also within the due date fixed for payment of the gratuity premium by the <ORG>. Thus, if section 43B of the Act is held to be applicable to the instant case by virtue of the provisions of section 43B(b) read with the second proviso thereto and Explanation to section 36(1)(va) , the petitioner will not be entitled to get the benefit of deduction of the provision made for payment to the approved gratuity fund in the aforesaid two years. Having regard to the fact that section 43B was enacted subsequent to the enactment of section 40A(7) covering the same field ordinarily the later provision containing a non obstante clause will have to be given precedence over the earlier provision containing a non obstante clause. Let us see whether there is any exception to this rule..

27. A three Judges Bench of <ORG> in <CITATION> AIR 1977 SC 265 in the context of the Delhi Rent Control Act and the Slum Areas (Improvement and Clearance) Act where with reference to both the enactments containing non obstante clauses. it was observed that "when two or more laws operate in the same field and each contains a non obstante clause stating that its provisions will override those of any other law, stimulating and incisive problems of interpretation arise. Since statutory interpretation has no conventional protocol, case of such conflict has to be decided in reference to the object and purpose of the laws under consideration". It was also observed that "one other test may also be applied though the persuasive force of such a test is but one of the factors which combine to give a fair meaning to the language of the law. That test is that the later enactment must prevail over the earlier one".

28. Another three Judges bench of <ORG> in <CITATION> . AIR 1992 SC 81 was concerned with the question whether sub-rule (2) of rule 3 of the Karnataka Civil Services (General Recruitment) Rules, 1977 has overriding effect over the Karnataka General Service (Motor Vehicles Branch) Recruitment Rules, 1976. The observations of <ORG> in <CITATION> AIR 1979 SC 984 that "a law which is essentially general in nature may contain special provisions on certain matters and in respect of these matters it would be classified as a special law. Therefore, unless the special law is abrogated by express repeal or by making provisions which are wholly inconsistent with it, the special law cannot be held to have been abrogated by mere implication" was noted.

29. The court thereafter observed that there should be a clear inconsistency between the two enactments before giving an overriding effect to the non obstante clause but when the scope of the provisions of an earlier enactment is clear the same cannot be cut down by resort to the non obstante clause. On the said principle it was held that the amendment cannot be justified because there is a non obstante clause in rule 3(2) it cannot be interpreted that the said amendment to the general rules, though later in point of time, would abrogate the special rule the scope of which is very clear and which co-exist particularly when no patent conflict or inconsistency can be spelt out. The aforesaid view of Justice <NAME> was endorsed by Justice <NAME> though Justice <NAME> did not agree.

30. A Constitution Bench of <ORG> in <CITATION> AIR 1991 SC 855 was also concerned with two statutes, viz., Public Premises Act and the Rent Control Act enacted by the same legislature where the question as to whether the provisions of Public Premises Act override the provisions of the Rent Control Act where it was observed that the question as to whether the provisions of the Public Premises Act override the provisions of the Rent Control Act will have to be considered in the light of the principles of statutory interpretation applicable to laws made by the same legislature. Thereafter it was observed in para 50 of the judgment as follows :

"One such principle of statutory interpretation which is applied is contained in the latin maxim : leges posteriores priores contrarias abrogant (later laws abrogate earlier contrary laws). This principle is subject to the exception embodied in the maxim : generalia specialibus non derogant (a general provision does not derogate from a special one). This means that where the literal meaning of the general enactment covers a situation for which specific provision is made by another enactment contained in an earlier Act, it is presumed that the situation was intended to continue to be dealt with by the specific provision rather than the later general one (Benion : Statutory Interpretation pp. 433-34)".

It was observed that the rationale of the above rule is explained by this court in <CITATION> AIR 1961 SC 1170 which reads as follows :

"The rule that general provisions should yield to specific provisions is not an arbitrary principle made by lawyers and Judges but springs from the common understanding of man and the common understanding of men and women that, when the same person gives two directions one covering a large number of matters in general and another to only some of them, his intention is that these latter directions should prevail as regards these while as regards all the rest the earlier directions should have effect".

31. Again the Constitution Bench noted that <ORG> in <CITATION> AIR 1979 SC 65 observed as follows :

"In passing a special Act, <ORG> devotes its entire consideration to a particular subject. When a general Act is subsequently passed, it is logical to presume that <ORG> has not repealed or modified the former special Act unless it appears that the special Act again received consideration from <ORG>".

In determining whether a statute is a special or a general one, it was noted that <ORG> in <CITATION> AIR 1980 SC 2181 observed that focus must be on the principal subject-matter plus the particular perspective and for certain purposes, an Act may be general and for certain other purposes it may be special and the distinctions cannot be blurred when dealing with finer points of law. <ORG> then observed that the Public Premises Act is a later enactment whereas the Rent Control Act is an earlier enactment and that the Public Premises Act represents the later will of <ORG> and should prevail over the Rent Control Act unless it can be said that the Public Premises Act is a general enactment, whereas the Rent Control Act is a special enactment and being a special enactment the Rent Control Act should prevail over the Public Premises Act.

32. We have already noted the provisions of section 40A(7) which provides that in cases covered by provisions of clause (a) no deduction shall be allowed in respect of any provision whether called as such or by any other name made by the assessee for the payment of gratuity to his employees on their retirement or on termination of their employment for any reason. However, clause (b) of section 40A(7) clearly provides that any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year, clause (a) will not apply. This means exception has been carved out in respect of payment of sums by way of any contribution towards an approved gratuity fund. Thus, it would appear that the legislature wanted to give a special treatment to a provision made by an assessee for the purpose of payment by way of any contribution towards an approved gratuity fund. This has to be treated as a special provision. In section 43B , the marginal note clearly says that "certain payments to be only on actual payment". It deals with various items mentioned in para 21 supra. Section 43B(b) , it must be noted, deals generally with any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees. Of course the gratuity fund is also referred. Here, it must be noted that even section 40A(7) provided that, notwithstanding any other provisions in the Act, provision for payment of gratuity cannot be allowed as a deduction. Section 43B(b) , on the other hand, is a positive provision which says that deduction towards gratuity fund can be allowed only in computing the income referred to in section 28 of that previous year in which a sum is actually paid by him. Here, it must be noted that section 43B is a provision of general nature which denies the claim for deduction otherwise than by way of actual payment.

33. As already noted, section 40A(7) clause (b) particularly sub-clause (i) thereof is a special provision in regard to a claim for deduction based on a provision made for payment towards an approved gratuity fund. Going by the principles laid down by <ORG> in the decisions discussed above, we are of the view that there is no clear inconsistency between the two provisions, viz., section 40A(7) and section 43B . Section 40A(7) is in negative terms and section 43B is in positive terms, the effect of both these provisions is that in order to claim deduction in respect of payment to a gratuity fund there must be actual payment and that deduction cannot be allowed on the basis of any provision. The only exception to the above rule is with regard to the provision for payment to an approved gratuity fund. It cannot be interpreted that the later provision in section 43B by introducing the non obstante clause would abrogate the special provision with regard to provision made for payment to an approved gratuity fund contained in section 40A(7)(b)(i) . This is all the more so since no patent conflict or inconsistency can be spelt out. Both the provisions can co-exist. A harmonious construction of the aforesaid two provisions would clearly indicate that the legislature never intended to take away the benefit conferred under clause (b) of section 40A(7) by the provisions of section 43B(b) of the Act.

34. Here, it must be noted that the <ORG> has adopted the aforesaid principle which was applied by the Jaipur Bench of the <ORG> in <CITATION> (supra). We do not find any illegality in the decision taken by the <ORG> in the instant cases on the said issue. We are in full agreement with the view taken by the <ORG>.

35. Now coming to the question of deduction regarding contribution towards <ORG> fund, the <ORG> has held that the provisions of the proviso to section 43B and the Explanation to section 36(1)(via) of the Act has no application since the Explanation refers to the due date for payment of the employees contribution only and that in the instant case what is paid to the <ORG> is the employers contribution. The <ORG> has also noted that in the above circumstances it is the main part. of section 43B , viz., sub-clause (b) is applicable and that admittedly the assessee had remitted the <ORG> contribution within the previous year relevant to the assessment year 1990-91 itself and that the deduction is claimed based on payment. In view of our finding in para. 25 of this judgment with reference to the three earlier decisions of this court, particularly in <ORG> case (supra) we are unable to agree with the findings of the <ORG> that the second proviso to section 43B has no application to a case of employers contribution, cannot be sustained. Since the assessee did not pay the amount within the due dates notwithstanding the fact that the amounts were paid during the previous year relevant to the assessment year in issue, the same cannot be allowed as a deduction.

36. In the above circumstances, we answer questions 1 to 3 in both the appeals in the affirmative, i.e., in favour of the assessee and against the revenue. Questions 4 to 6 in ITA No. 37 of 2000 is answered in the negative, i.e., in favour of the revenue and against the assessee.

These two appeals are disposed of as above.

OPEN


PETITIONER: COMMISSIONER OF INCOME-TAX, WEST BENGAL,CALCUTTA Vs. RESPONDENT: GUNGADHAR BANERJEE AND CO. (P) LTD. DATE OF JUDGMENT: 22/03/1965 BENCH: <NAME>, K. BENCH: <NAME>, K. SHAH, J.C. SIKRI, S.M. CITATION: 1965 AIR 1977 1965 SCR (3) 439 CITATOR INFO : E 1968 SC 883 (6) R 1973 SC2323 (9) RF 1976 SC 255 (21) R 1990 SC1277 (29) ACT: Indian Income-tax Act , 1922 , s. 23A -Dividend- Distribution-Burden of showing whether low-Circumstances to be considered--"Smallness of profit"-Meaning of-"Accounting profits" and "assessable profits", distinction between. HEADNOTE: As the dividend declared to be distributed by the respondentcompany at its General Body Meeting was below 60 per cent of the profits available for distribution, the Income-Tax Officer, with the previous approval of the Inspecting Assistant Commissioner, passed an order under s. 23-A of the Income-Tax Act directing that a certain higher amount shall be deemed to have been distributed as dividends as on the date of the annual general meeting of the Company. He found that, having regard to the profits earned in the earlier years and the capital and taxation reserves, payment of larger dividend would not be unreasonable. This was affirmed, on assessees appeals by the Appellate Assistant Commissioner, and <ORG>. The <ORG> referred the question to <ORG> under sec. 66(1) of the Act, which concluded that having regard to the smallness of the profits, the order of the Income-tax Officer was not justified and answered the question in the assessee's favour. In appeal by certificate. HELD: Section 23A of the Income-tax Act is in the nature of a penal provision. In the circumstances mentioned therein, the entire undistributed portion of the assessable income of the company is deemed to be distributed as dividends. Therefore, the <ORG> has strictly to comply with the conditions laid down thereunder. The burden therefore, was upon the <ORG> to prove that the conditions laid down thereunder were satisfied, before the order was made. <NAME> v. Inland <ORG> Commis- sion L.R.  A.C. 643 applied. In the present case the <ORG> failed to discharge the said burden: indeed, the facts established stamp the order of the Income-tax Officer as unreasonable.. [446F, G] Though the object of the section is to prevent evasion of tax, the provision must be worked not from the stand Point of the tax collector but from that of a businessman. The reasonableness or the unreasonableness of the amount distributed as dividends is judged by business considerations, such as the previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar others. It is neither possible nor advisable to lay down any decisive tests for the guidance of the Income-tax Officer. It depends upon the facts of each case. The only guidance is his capacity to put himself in the position of a prudent businessman. It is difficult to say that the Income-tax Officer cannot take into consideration any circumstances other than losses and smallness of profits. This argument ignores the expression "having regard to" that precedes the said words in s. 23A of the Act. [444B-E] 440 Commissioner of Income-tax v. Williamson Diamond Ltd. L.R.  A.C. 41, applied. <CITATION> , (1949) 17 I.T.R. 493, referred to. The words "smallness of profit" in s. 23A of the Act refer to actual accounting profits in comparison with the assessable profits of the year. The two concepts "accounting profits" and "assessable profits" are distinct. In arriving at the assessable profits the Income-tax Officer may disallow many expenses actually incurred by the assessee; and in computing his income he may include many items on notional basis. But the commercial or accounting profits are the actual profits earned by an assessee calculated on commercial principles. [445F-H.] <CITATION> . (1961)41 I.T.R. 296, followed. In a case where an Income-tax Officer takes action under s. 23A of the Act before the tax for the relevant period is assessed, only the estimated tax can be deducted; but, there is no reason why, when the tax had already been assessed before he takes action under this section. the estimated tax and not the real tax shall be deducted therefrom. [445H- 446B] There is no provision in the Income-tax Act which makes the Balance Sheet final for the purpose of s. 23A of the Act or even for the assessment. It no doubt affords a prima facie proof of the financial position of the company on the date when the dividend was declared. But nothing prevents the parties in a suitable case to establish by cogent evidence that certain items were, either by mistake or by design, inflated or deflated or that there were some omissions. [446B-D] JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 807 of 1963. Appeal from the judgment and order dated September 4, 1961 of the Calcutta High Court Income-tax Reference No. 85 of 1956.

<NAME>, Attorney General, <NAME> and <NAME>, for the appellant.

<NAME> and <NAME>, for the respondent.

The Judgment of the Court was delivered by <NAME>, J. This appeal by certificate raises the question of the construction of the provisions of s. 23A of the Indian Incometax Act, 1922, hereinafter called the Act, before it was amended by the Finance Act , 1955. The relevant and undisputed facts may be briefly stated. Messrs. <NAME> & Co. (Private) Ltd., the respondent herein, is a private limited company. At the General Body Meeting of the Company held on December 6, 1948, the Directors declared a dividend at the rate of 5 1/2 per cent. per share. The said distribution of dividends related to the accounting year 1947-48 which ended on April 13, 1948. According to the balance-sheet of the Company for that year the net profit for the said year was Rs. 1,28,112/7/5. The taxation reserve was Rs. 56,000. The profit left was Rs. 72,000. The Directors declared a dividend at the rate of 51 per cent. per share thus making a total distribution of Rs. 44,000. On that basis the profit that was available for further distribution was Rs. 28,000. Though under the balance-sheet the estimated tax was Rs. 66,000, the tax assessed for the year was Rs. 79,400. If the difference between the tax assessed and the estimated tax was also deducted from the profits, there would only be a sum of Rs. 4,000 that would remain as undistributed profits.

The Income-tax Officer assessed the total income of the assessee for the year 1948-49 at Rs. 2,66,766. After deducting the tax payable under the two heads, namely, I.T. of Rs. 81,517/13/0 and C.T. of Rs. 33,345/12/0, he held that a sum of Rs. 1,51,902/7/0 was available for distribution to the shareholders as dividends. As the amount distributed by the Company was below 60 per cent. of the profits available for distribution, the Income-tax Officer, with the previous approval of the Inspecting Assistant Commissioner of Income- tax, passed an order under s. 23-A of the Act directing that the amount of Rs 1,07,902 (i.e., Rs. 1,51,902 minus Rs. 44,000= Rs. 1,07,902) shall be deemed to have been distributed as dividends as on the date of the annual general meeting of the Company. He found that, having regard to the profits earned in the earlier years and the capital and taxation reserves, payment of larger dividends would not be unreasonable.

The assessee preferred an appeal to the Appellate Assistant Commissioner against the order made by the Income-tax Officer under s. 23 A of the Act . By the time the appeal came to be disposed of, in an appeal against the order of assessment the assessed income was reduced by a sum of Rs. 80,926. Notwithstanding the said deduction, as the amount of Rs. 44,000 distributed by the Company was less than 60 per cent. of the balance of Rs. 1,64,440 arrived at on the basis of the revised calculation, the Appellate Assistant Commissioner held that an action under s. 23A of the Act was justified. He further held that the assesee incurred no losses in the previous years, that in almost all the past assessments the assessee showed substantial profits, that the profits disclosed in the year of account were not small and that, therefore, the direction to pay a higher dividend was not unreasonable.

On a further appeal, <ORG> held that the amount of profits should be judged only from the balancesheet and that judged by the figures given thereunder a dividend to the extent of Rs. 64,000 being 60 per cent. of the assessed profits less income-tax. could be distributed and that such distribution was not unreasonable. The <ORG> referred the following question under s. 66(1) of the Act for the decision of <ORG>:

"Whether on the facts and in the circumstances of the case any larger dividend than that declared by the company could reasonably be distributed within the meaning of Section 23A of the Indian Income-tax Act and the application of Section 23A of the Indian Income-tax Act was in accordance with law."

<ORG> held that the <ORG> went wrong in taking into consideration the past profits instead of the past losses, the taxation reserves without considering the past liabilities for taxation, and the profits for the year in question disclosed in the balance-sheet, ignoring the actual tax assessed for that year. It came to the conclusion that, having regard to the smallness of the profits, the order of the Income-tax Officer was not justified. In the result, it answered both parts of the question referred to it in the negative. Hence the appeal.

Learned Attorney-General, appearing for the <ORG>, con- tended that the balance-sheet of a company on the basis of which dividends were declared was final and the profits disclosed thereunder would be the correct basis for the Income-tax Officer acting under s. 23A of the Act; and, as the balance-sheet of the company for the relevant year showed a sum of Rs. 1,05,950 as "capital reserve brought forward", a sum of Rs. 5,73,161 as taxation reserve, and a sum of Rs. 56,000 as estimated tax, the Income-tax Officer rightly held that the financial condition of the Company was sufficiently sound to warrant an order under s. 23A of the Act. Alternatively he contended that if the respondent could be permitted to go behind the balance-sheet to ascertain the real profit, the <ORG> should also be likewise allowed to go behind the balance-sheet to show that the commercial profit was larger and the reserves were in excess of the past liabilities and that in that event to remand the case for ascertaining the true state of facts. Mr. <NAME>, appearing for the assessee-Com- pany, contended that the burden lies on the <ORG> to establish that the dividend declared was not a reasonable one and that in the present case it had not discharged that burden. <NAME> further argued that for the purpose of "testing the smallness of the profit" the Income-tax Officer had to take into consideration not the assessable Income but the commercial profit of the Company and that in the present case, having regard to the commercial profit, a declaration of a higher dividend would be unreasonable. He pleaded that, should this Court hold that the Income-tax Officer could establish that the reserves were more than the liabilities, the assessee should also be permitted to prove what were its real, commercial profits and that the reserves were far less than the demands.

The contentions of learned counsel turn upon the provisions of s. 23A of the Act, before it was amended by the Finance Act of 1955. The material part of that section reads:

"(1) Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company up to the end of the sixth month after its accounts for that previous year are laid before the company in general meeting are less than sixty per cent of the assessable income of the company of that previous year, as reduced by the amount of incometax and super-tax payable by the company in respect thereof he shall, unless he is satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profit made, the payment of a dividend or a larger dividend than that declared would be unreasonable, make with the previous approval of the Inspecting Assistant Commissioner an order in writing that the un- distributed portion of the assessable income of the company of that previous year as computed for income-tax purposes and reduced by the amount of income-tax and super-tax payable by the company in respect thereof shall be deemed to have been distributed as dividends amongst the shareholders as at the date of the general meeting aforesaid, and thereupon the proportionate share thereof of each shareholder shall be included in the total income of such shareholder for the purpose of assessing his total income."

The section is in three parts: the first part defines the scope of the jurisdiction of the Income-tax Officer to act under s. 23A of the Act; the second part provides for the exercise of the jurisdiction in the manner prescribed thereunder-, and the third part provides for the assessment of the statutory dividends in the hands of the share.- holders. This section was introduced to prevent exploitation of juristic personality of a private company by the members thereof for the purpose of evading higher taxation. To act under this, section the Income-tax Officer has to be satisfied that the dividends distributed by the Company during the prescribed period are loss than the statutory percentage, i.e., 60 per cent., of the assessable income of the Company of the previous year less the amount of Income-tax and super-tax payable by the Company in respect thereof. Unless there is a deficiency in the statutory percentage, the Income-tax Officer has no jurisdiction to take further action thereunder. If that condition is complied with, he shall make an order declaring that the undistributed portion of the assessable income less the said taxes shall be deemed to have been distributed as dividends amongst the shareholders. But before doing so, a duty is cast on him to satisfy himself that, having regard to the losses incurred by the company in earlier years or "the smallness of the profit made," the payment of a dividend or a larger dividend than that declared would be reasonable. The argument mainly centered on this part of the section. Would the satisfaction of the Income-tax Officer depend only on the two circumstances, namely, losses and smallness of profit? Can he take into consideration other relevant circumstances? What does the expression "profit" mean? Does it mean only the assessable income or does it mean commercial or accounting profits? If the scope of the section is properly appreciated the answer to the said questions would be apparent. The Incometax Officer, acting under this section, is not assessing any income to tax: that will be assessed in the hands of the shareholders. He only does what the directors should have done. He puts himself in the place of the directors. Though the object of the section is to pre- vent evasion of tax, the provision must be worked not from the standpoint of the tax collector but from that of a businessman. The yardstick is that of a prudent businessman. The reasonableness or the unreasonableness of the amount distributed as dividends is judged by business considerations, such as the previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar others. He must take an overall picture of the financial position of the business. It is neither possible nor advisable to lay down any decisive tests for the guidance of the Income-tax Officer. It depends upon the facts of each case. The only guidance is his capacity to put himself in the position of a prudent businessman or the director of a company and his sympathetic and objective approach to the difficult problem that arises in each case. We find it difficult to accept the argument that the Income-tax Officer cannot take into consideration any circumstances other than losses and smallness of profits. This argument ignores the expression "having regard to" that precedes the said words. On the interpretation of the words "having regard to" in s. 23A of the Act, the decision of <ORG> of <ORG>, consisting of <NAME>, and <NAME>, in <CITATION> (1) was relied upon by the appellant. <NAME>, speaking for the <ORG>, held in that case that "the reasonableness or unreasonableness of the payment of a dividend or a larger dividend has to be judged only with reference to the two facts mentioned in the section, viz., losses incurred by the company in earlier years and the smallness of the profit." To put the contrary construction, the learned Chief Justice said, "would be to import into it words which the Legislature did not think fit to insert in that section and to expand the ambit of the discretion exercised by the Income-tax Officer." But the learned Chief of Justice did not expressly consider the scope of the expression "having regard to" found in the section. <ORG> in Commissioner of Income-tax v. <ORG>) had to consider the scope of s. 21(1) of the Tanganyika Income-tax (Consolidation) Ordinance, 27 of 1950, which was pari materia with s. 23A of the Act. Adverting to the argument based upon the words "having regard to", their Lordships observed:

"The form of words used no doubt lends itself to the suggestion that regard should, be paid only to the two matters mentioned, but it appears to their Lordships that it is (1) [1949] 17 I.T.R. 493.

(2) L.R. [1958] A.C. 41.49.

impossible to arrive at a conclusion as to reasonableness by considering the two matters mentioned isolated from other relevant factors. Moreover, the statute does not say "having regard only" to losses previously incurred by the company and to the smallness of the profits made. No answer, which can be said to be in any measure adequate, can be given to the question of "unreasonableness" by considering these two matters alone. Their Lordships are of the opinion that the statute by the words used, while making sure that "losses and smallness of profits" are never lost sight of, requires all matters relevant to the question of unreasonableness to be considered. Capital losses, if established, would be one of them."

With great respect, we entirely agree with this view. The contrary view unduly restricts the discretion of the Income- tax Officer and compels him to hold a particular dividend reasonable though in fact it may be unreasonable. The expression "smallness of profit" came under the judicial scrutiny of this <ORG> in <CITATION> .(1) <NAME>, <NAME>, J., speaking for the <ORG> observed thus:

"Smallness of the profit in section 23A has to be adjudged in the light of commercial principles and not in the light of total receipts, actual or fictional. This view appears to have been taken by <ORG> in India without any dissentient opinion."

The learned, Judge laid down the following test: "Whether it would be unreasonable to distribute a larger dividend is to be judged in the light of the profits of the year in question." If the assessable income was the test and if the commercial profits are small, the learned Judge pointed out, the company would have to fall back either upon its reserves or upon its capital which in law it could not do. This decision is binding on us and no further citation in this regard is called for. These two concepts, "accounting profits" and "assessable profits", are distinct. In arriving at the assessable profits the Income-tax Officer may disallow many expenses actually incurred by the assessee; and in computing his income, he may include many items on notional basis. But the commercial or accounting profits are the actual profits earned by an assessee calculated on commercial principles. Therefore, the words "smallness of profit" in the section refer to actual accounting profits in comparison with the assessable profits of the year.

Another incidental question is whether for the purpose of ascertaining the net commercial profits the tax estimated or the tax actually assessed shall be deducted. In a case where an Income-tax Officer takes action under s. 23A of the Act before the tax for the relevant period is assessed, only the estimated tax can be deduct-

(1) (1961) 41 T.T.R. 290, 296, p(N)4SCI-

ed but, there is no reason why, when the tax had already been assessed before he takes action under this section, the estimated tax and not the real tax shall be deducted therefrom. In this view, in the present case to ascertain the commercial profits what should be deducted is not the tax shown in the balance-sheet but the actual tax assessed, on the income of the Company.

Another question raised is whether the balance-sheet is final and both the parties are precluded from questioning its correctness in any respect. There is no provision in the Income-tax Act which makes the balance-sheet final for the purpose of s. 23A of the Act or even for the assessment. It no doubt affords a prima facie proof of the financial position of the company on the date when the dividend was declared. But nothing prevents the parties in a suitable case to establish by cogent evidence that certain items were, either by mistake or by design, inflated or deflated or that there were some omissions. It does not also preclude the assessee from proving that the estimate in regard to certain items has turned out to be wrong and placing the actual figures before the Income-tax Officer. But in this case no attempt was made before the <ORG> to canvass the correctness of the figures either on the debit side or on the credit side and we do not think we are justified to give another opportunity to either of the parties in this regard. Before the <ORG> there was no dispute that the actual tax assessed for the relevant year was much higher than the estimated tax shown in the balance- sheet.

Section 23A of the Act is in the nature of a penal provision. In the circumstances mentioned therein the entire undistributed portion of the assessable income of the Company is deemed to be distributed as dividends. Therefore, the <ORG> has strictly to comply with the conditions laid down thereunder. The burden, therefore, lies upon the <ORG> to prove that the conditions laid down thereunder were satisfied before the order was made: see <ORG> v. Inland <ORG> Commissioners(1). In the present case the <ORG> failed to discharge the said burden: indeed, the facts established stamp the order of the Income-tax Officer as unreasonable. The assessment orders passed by the Income-tax Officer are not before the <ORG>. The balance-sheet shows a net profit of Rs. 1,28,112/7/5 whereas the Income-tax Officer has computed the assessable income at Rs. 2,66,766, which was later reduced in appeal by Rs. 80,925. There is no evidence on the record that the real commercial profits were artificially reduced in the balance. sheet. Nor is there evidence to show what part of the income assessed represents commercial profits, and what part the notional income. In the circumstances it must be assumed that the amount mentioned in the balance-sheet correctly represented the commercial profits.

(1) L.R. [1942] A.C.643.

From the figures already extracted at an earlier stage it is manifest that the net commercial profit was barely Rs. 4,000 and it is not possible to hold that it was not unreasonable for the Income-tax Officer to make an order to the effect that the additional sum of Rs. 64,000 should be deemed, to have been distributed as dividends amongst the shareholders. In the result we hold that the order of <ORG> is correct and dismiss the appeal with costs. Appeal dismissed.


PETITIONER: B. V. PATANKAR AND OTHERS Vs. RESPONDENT: C. G. SASTRY DATE OF JUDGMENT: 08/09/1960 BENCH: <NAME>, J.L. BENCH: <NAME>, J.L. SINHA, BHUVNESHWAR P.(CJ) GAJENDRAGADKAR, P.B. SUBBARAO, K. WANCHOO, K.N. CITATION: 1961 AIR 272 1961 SCR (1) 591 CITATOR INFO : R 1967 SC1193 (12) R 1980 SC 214 (12) RF 1991 SC1094 (4,5) ACT: Rent Control-Restrictions against eviction of tenants-Decree for possession of house-Delivery given in the absence of tenant-Executing <ORG> ignoring restrictions-Legality- Repugnance Mysore House Rent and Accommodation Control Order, 1948, ss. 9 and 16 and Transfer of Property Act , 1882 (Act IV of 1882),Code of Civil Procedure (Act V of 1908) ss. 47 , 151 . HEADNOTE: The appellants in execution of a decree passed in their favour for possession over a house obtained possession thereof on July 22, 1951. The order for delivery of possession was made without notice to and in the absence of the respondent. The respondent made an application in <ORG> under ss. 47 , 144 and 151 , Code of Civil Procedure for setting aside the ex-parte order of delivery and for redelivery of possession of the house to him or in the alternative, for an order to the appellants for giving facilities for removing the moveables from the house. <ORG> upheld the contention of the appellant that 76 592 the respondent's application was not maintainable. On appeal by the respondent <ORG> held that <ORG> had no jurisdiction to order the eviction of the respondent because of the provisions of the Mysore House Rent and Accommodation Control Order, 1948, which was in operation on the date of eviction and under ss. 9 and 16 of which certain restrictions were placed on the eviction of tenants. On appeal to this <ORG> by special leave, the appellants contended, inter alia, as they did in <ORG> also-, that the Mysore House Rent Control Order of 1948 was repugnant to the provisions of the Transfer of Property Act , 1882 (IV of 1882), which became applicable in the State of Mysore by Part B States (Laws) Act , 1951 (Act III of 1951), which came into force on April 1, 1951 ; and therefore the House Control Order could not operate on the rights of the parties on the day when <ORG> made the order for delivery of possession to the appellants, i. e., July 9, 1951, or when delivery was actually given i.e., on July 22, 1951. Held, that the Transfer of Property Act came into force only when it was extended by notification dated September 12, 1951, under s. 3 of that Act, i.e., from October 1, 1951, and therefore the Mysore House Rent and Accommodation Control Order, 1948, was not repealed as from April 1, 1951, when the Part B States (Laws) Act , 1951, came into force and was in force when the possession was delivered. It was then an existing law which was saved by Art. 372 of the Constitution and remained unaffected by Art. 254 , and the question of repugnancy to the Transfer of Property Act (Act IV of 1882) did not arise in this case. <CITATION> , A.I.R. 1959 Punj. 440, considered. Section 47 of the Code of Civil Procedure was applicable to the proceeding out of which this appeal has arisen because the question whether the decree was completely satisfied and therefore the court became functus officio was a matter relating to execution, satisfaction and discharge of the decree. <CITATION> . 1956 S. C. 87 and J. Marret v. Mohammad Shirazi and Sons, A.I.R. 1930 P. C. 86, considered. Where the court was not aware of the statutory restriction by which the execution of a decree was prohibited and passed an ejectment decree against a tenant <ORG> could not execute the decree and any possession given under an ex parte order passed in execution of such a decree could be set aside under s. 151 of the Code of Civil Procedure. <CITATION> , A.I.R. 1949 Mad. 809, considered. 1 The contentions of the appellant based on the ground of res judicata and estoppel were without any force. Sections 9(1) and 16 of the House Rent Control Order placed restrictions on 593 the power of the <ORG> to execute the decree and ignoring them was not merely an error in the exercise of jurisdiction. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 302 of 1955. Appeal by special leave from the judgment and order dated April 3, 1954, of <ORG> in Regular Appeal No. 195 of 1951-52.

<NAME> and <NAME>, for the appellants. <NAME>, <NAME>, <NAME> and <NAME>, for the respondent.

1960. September 8. The Judgment of the Court was delivered by <NAME> appeal has little substance and must, therefore, be dismissed. The appellants are the decree- holders and the respondent is the judgment-debtor. On February 3, 1941, by a registered deed the father of the appellants leased to the respondent the house in dispute for a period of 10 years with an option of renewal for further periods for as long as the respondent wanted. This house was used by the respondent for his hotel.

The father died on January 25, 1945. On December 21, 1945, the appellants filed a suit for a declaration that the deed of lease of February 3, 1941, executed by their father was not for legal necessity or for the benefit of the family, that the alienation was not binding on them and the option of renewal under the lease was void and unenforceable on account of uncertainty. The appellants further prayed for delivery of possession and for a decree for a sum of Rs. 2,655 as past mesne profits and future mesne profits at Rs. 250 per mensem as from December 1, 1945. The respondent filed his written statement on March 11, 1946, and an additional written statement on November 26, 1946, whereby he raised an objection to the jurisdiction of the court by reason of the Mysore House Rent Control Order of 1945. The trial judge upheld the preliminary objection and dismissed the suit. On appeal, <ORG> set aside the decree on the ground that the nature and scope of the suit had been misconceived by the trial court and that it was not based on relationship of landlord and tenant and therefore s. 8(1) of the Mysore House Rent Control Order was inapplicable and the case was remanded for retrial.

On August 23, 1948, the suit was decreed. The trial court held that the lease was binding for the first period of ten years as from May 1, 1941, as it was supported by legal necessity; but the option of renewal was void and unenforceable for uncertainty and therefore a decree for possession was passed to be operative on the expiry of ten years, i.e., May 1, 1951. On appeal <ORG> confirmed that decree on August 22, 1950.

On July 9,'1951, the appellants took out execution of the decree and on July 22, 195 1, possession was delivered to them. The order for delivery was made without notice to and in the absence of the respondent. The proceedings, "spot mahazar" that the respondent came to the spot after delivery of the major portion of the property in dispute had been delivered to the appellants.

On August 13, 1951, the respondent made an application in <ORG>, the District Judge, under ss. 47, 144 and 151 of the Code of Civil Procedure for setting aside the ex parte order of delivery and for redelivery of possession of the house to him and in the alternative for an order to the appellants to give facilities to him (respondent) to remove the various moveables and articles mentioned in the petition. The appellants pleaded that the application was not maintainable. The District Judge, on November 14, 1951, upheld this contention and dismissed the application. An appeal was taken to <ORG> and it reversed the order of <ORG> and directed the appellants to return possession of the house in dispute to the respondent along with the moveables which were in the house at the time respondent was evicted. <ORG> held that <ORG> had no jurisdiction to order the eviction of the respondent because of the provisions of Mysore House Rent and Accommodation Control Order, 1948, which was in operation on the date of eviction, <ORG> having refused to give a certificate under art. 133 the appellants obtained special leave to appeal from this Court on January 12, 1955, and this is how the matter has come to this Court.

The question for- decision mainly turns upon the applicability of the provisions of the two House Rent Control Orders of 1945 and 1948 and how far they were applicable to the proceedings in the suit and execution. The Mysore House Rent Control Order of 1945 came into force on November 6, 1945, and by s. 8(1) of this Act a restriction was imposed on the eviction of tenants and the relevant part of this section was:-

Section 8 "(1) A tenant in possession of a house shall not be evicted therefrom, whether in execution of a decree or otherwise before or after the termination of the tenancy, except in accordance with the provisions of this clause; (2)A landlord wishing to evict a tenant in possession shall apply to the Controller for a direction in that behalf. If the Controller after giving the tenant a reasonable opportunity of showing cause against the application, is satisfied This Order was replaced by the Mysore Rent and Accommodation Control Order of 1948 which came into force on July 1, 1948. The relevant provisions of this Order, i. e., ss. 9 and 16 which are applicable to the present appeal are as follows:- Section 9 " (1) A tenant in possession of a house shall not be evicted therefrom whether in execution of a decree or otherwise except in accordance with the provisions of this clause (2)A landlord who seeks to evict a tenant in possession shall apply to the Controller for a direction in that behalf If the Controller, after giving tenant a suitable opportunity of showing cause against such application-, is satisfied:-

this Order shall Prevent a landlord from filing a suit for eviction of a tenant before a competent civil court, provided that no decree for eviction of a tenant, passed by a civil court shall be executed unless a certificate to that effect is obtained from the Controller "

It was argued on behalf of the appellants before <ORG> and that argument was repeated before us that the Mysore House Rent Control Order of 1948 was repugnant to the provisions of the Transfer of Property Act (Act IV of 1882) which was brought into force in the State of Mysore by Part B States (Laws) Act , 1951 (Act III of 1951). This Act was enacted on February 22, 1951, and came into force on April 1, 1951, which was termed the appointed day. It was contended therefore that the House Control Order could not operate on the rights of the parties on the day when <ORG> made the. order for delivery of possession to the appellants, i.e., July 9, 1951, or when the delivery was actually given, i.e., on July 22, 1951. To test the force of this argument it is necessary to examine the provisions of Part B States (Laws) Act and how and when as a consequence of it the Transfer of Property Act became effective and operative in the State of Mysore. Section 3 of that Act deals with the extension and amendment of certain Acts and Ordinances. The Act s and the Ordinances specified in the Schedule were amended and became applicable as specified and as a consequence the fourth paragraph of s. 1 for the words " Bombay' Punjab or Delhi ", the words " that the said States " were substituted. Therefore the effect of the Part B States (Laws) Act merely was that qua the Transfer of Property Act , the State of Mysore was placed on the same footing as the States of Bombay, Punjab or Delhi. It was by virtue of a Notification No. 2676-Cts. 46- 51-5 dated September 12, 1951, that the Transfer of Property Act was extended to the State of Mysore as from October 1, 1951. Consequently the laws of the State applying to leases which would include the Mysore House Rent Control Order of 1948 continued to be in force and applicable to cases that were pending till it was repealed by the Mysore Rent Control Act of 1951 which received the President's assent on August 16, 1951. The argument, therefore, that as from April 1, 1951, as a result of repugnancy the House Rent Control Order of 1948 stood repealed must be repelled as unsound and cannot be sustained, because it was an existing law which was saved by art. 372 of the Constitution and remained unaffected by art.

254. <ORG> in <CITATION> (1) discussing the effect of Part B States (Laws) Act on the application of the Transfer of Property Act to <ORG> said:

" All that Central Act III of 1951 has done is to make it possible for Part B States to extend the Act to any part of territory by notification. Actually, however, this wag never done by <ORG> or Punjab and the Transfer of Property Act is not as such in force there. It is unnecessary in the circumstances to examine the argument further ".

Although the question of repugnancy was raised in <ORG> at the time of the hearing of the appeal, the true effect of s. 3 of the Part B States (Laws) Act was not brought to the notice of the learned Judges nor was the Notification placed before them, but it was discussed by <ORG> in its order refusing certificate under art. 133(1) of the Constitution. The argument of repugnancy, therefore, is wholly inefficacious in this appeal. The inapplicability of s. 47 to the proceedings out of which the appeal has arisen was also raised before us, but that contention is equally unsubstantial because the question whether the decree was completely satisfied and therefore the court became functus officio is a matter relating to execution, satisfaction and discharge of the decree. It was held by this Court in <CITATION> (2) that:

" When a sale in execution of a decree is impugned on the ground that it is not warranted by the terms thereof, that question could be agitated, when it arises between parties to the decree, only by an application under s. 47 , and not in a separate suit ".

(1) A.I.R. 1959-Pb. 440, 447.

(2) A.I.R. 1956 $.C. 87, 91.

See also J. Marret v. <ORG> (1) where the facts were that an order was made by <ORG> directing contrary to the terms of the decree the payment of a certain fund to the decree-holder. <ORG> in <CITATION> (2) held that where <ORG> was not aware of the amendment of the Rent Restriction Act by which the execution of a decree was prohibited and passed an ejectment order against a tenant, <ORG> could not execute the decree and any possession given under an ex parte order passed in execution of such a decree, could be set aside under s. 151 of the Code of Civil Procedure. The prohibition is equally puissant in the present case and s. 47 read with s. 151 would be equally effective to sustain the order of redelivery made in favour of the respondent. The applicability of res judicata and the defenses of waiver and estoppel were also raised by the appellants. The contention of res judicata was based on the plea taken by the respondent in his written statement, dated March 11, 1946, where he pleaded that the civil court had no jurisdiction to order eviction because of the House Rent Control Order, 1945, to which the reply of the appellants was that considering the nature of the suit and the consequential remedy that they were seeking, the plea of jurisdiction of the court was not open to the respondent. Thereupon the trial court raised a new 'issue " whether this court has jurisdiction to try the suit, in view of the House Rent Control Order " which was decided against the respondent and a decree in favour of the appellants was passed on August 23,1945. This judgment formed the basis of the argument before us that the plea of in-executability of the decree could not be raised because it was barred on the principle of res judicata. The plea of res judicata is not available to the appellants as the prohibition on account of the House Rent Control Order was not against the passing of the decree but against its execution and therefore the objection to the executability could only be taken (1) A.I.R. 1930 P.C. 86, (2) A.I.R. 1949 Mad. 809.

at the time of the execution of the decree which in the instant case could not be done because the order for delivery by <ORG> was passed without notice to the respondent. We must, therefore, repel the contention based on the ground of res judicata.

The argument of waiver and estoppel is also devoid of force. This plea was based on a letter which the respondent's lawyer sent in reply to the respondent asking to make arrangements to put the appellants in possession. The former replied thereto that his client' was making arrangements and as soon as he could do go, he would hand over possession to the appellants. This is slender basis for the sustainability of the plea of waiver and estoppel. There is no conduct on the part of the respondent which has induced the appellants to change their position or has in any way affected their rights and the plea of non- executability which has been taken is based on statute and against statute there cannot be an estoppel. This ground taken by the appellants is equally unsound and must be rejected.

The contention raised that ignoring ss. 9(1) and 16 of the 1948 House Rent Control Order is no more than an error in the exercise of jurisdiction does not appear to be sound because those sections are a fetter on the executability of the decree and not merely an error in the exercise of the jurisdiction. In the present case the two sections mentioned above were a restriction on the power of the court to execute the decree and therefore this argument must also be, rejected.

In the result this appeal fails and is dismissed with costs. Appeal dismissed.