RAM BACHAN LAL

l'.

THE STATE OF BffiAR

February 28, 1967

[K. SUBBA RAo, C.J., J. C. SHAH, S. M. SIKRI, V, RAMASWAMI

AND C. A. VAIDIALINGAM, JJ.j

Bihar and Orissa Municipal Act (8. & 0. Act 7 of 1922), Ss.

82(1)(1!), 1SOAE, 388 and 389-Profession tax-If infringes fundamental rightJ-Constitution of /lldia, Arts. 14, 19 & 31.

The respondent-Notified Area Committee-imposed profession tax under the Bihar and Orissa Municipal Act, 1922 and issued demand notices to the petitioner. The petitioner filed a petition under Art. 32 of the Constitution challenging the provisions of Act aJ infringing Arts. 14, 19 and 31 of the Constitution on the grounds that (i) Ss. 388 and 389 of the Act gave aJbitrary power to the Government to constitute either a municipality under s. 4 of the Act or a notified area committee under s. 388; (ii) the rate of tax to be levied had been left to the discretion of the Commissioner and the Government without giving any guidance as to the amount of tax; (iii) proviso (iv) to s. 82(1) was void as it did not give any indication as to the circumstanc~ under which the Government should direct the Commissioners to levy lax under s. 82(1 )(ff); (iv) the Act did not lay down proper procedure for the asse.iSment and determination of the tax; and (v) no appeals or reference& were provided in the Act and the only remedy of an assessee who was aggrieved by the assessment, was to file. a revieviT under s. 150E.

Held : The petition must be dismissed.

(i) Sections 4 and 388 of the Act give sufficient guidance to the Government. Section 4(i) contemplates a town containing not less than five thousand inhabitants and a town of a particular density of population, and further that three-fourths of the adult male population should be engaged in pursuits other than agriculture. These requirements show that the area has reached such a stage of development that the Government should constitute a municipality in the area.

Section 388 would come into picture only if the requirements of s. 4 are not satisfied but yet the Government considers it necessary to make administrative provi~ sions for all or any of the purposes of this Act. (7 C-DJ

(ii) Schedule IV specified the maximum amount of tax that can be levied and s. 150 D lays down the purposes for which the tax can be utilised.

This gives sufficient guidance to the Commissioners or the State Government to fix the rate of tax. [7 G]

The Corporation of Calcutta v. Liberty Cinema [1965] 2 S.C.R. 477. relied upon.

(i'i) The Government will only direct the Commissioner to levy the tax if the Commis.ioners do not carry out their duty properly. (8 C-DJ

(iv) Explanation (i) to S. 150-A of the Act clearly provides that if a person is assessable to income tax under the Indian Income Tax Act, 1922 h; s taxable income would be determined according to the provisions of the Income Tax Act. and if he is not assessable, his taxable income

would be computed as far as may be in accordance with the procedure A laid down in the said Act.

(v) In the circumstances, S. 150-E gives a reasonable remedy to an aggrieved party. Sec•ion 150-E(2) drrect> that the applicatron has to be heard and determined in accordance with the procedure laid down in Ss. 115, 117, 118 and 119. The subject-matter of Profession Tax is not very complicated and the procedure provided for the assessment and ro- B view is reasonable. (8 E-FJ

Rohtas Industries Ltd., Dalm/anagar v. State of Bihar (1965} Bihar L.J.R. 886, referred to.

ORIGINAL J URISDICTJON : Writ Petition No. 194 of 1966.

Petition under Art. 32 of the Constitution of India for the enforcement of fundamental rights.

B. Sen and K. K. Sinha, for !he petitioner.

B. P. Jha, for the respondents.

The Judgment of the Court was delivered by

Sikri, J. In this petition under art. 32 of the Constimtion a notice of demand issued by the Dehri-Dalmianagar Notified Area Committee demanding Rs. 100/ • on account of Profession Tax levied under the Bihar and Orissa Municipal Act, 1922 (B. & 0.

Act VII of 1922 )-hereinafter referred to as the Act-for the period 1963-64 to 1965-66 from the petitioner, Shri Ram Bachan Lal, Land Officer, who is in the employment of Roh!as Industries Ltd., Dalmianagar, is sought to be quashed on the ground that !he provisions of the Act under which it has been issued infringe the fundamental rights of the petitioner under arts. 14, 19 and 31 of the Constitution.

The Dehri-Dalmianagar Notified Area Committee was constituted by notification dated May 23, 1942, issued in exercise of the powers conferred by sub-s. ( 1) of s. 388 of the Act. Section 388 reads as follows :

"388. Constitution of notified area- ( 1) The State Government may by notification declare that it is necessary to make administrative provision for all or any of the purposes of this Act in any area specified in the notification, other than a municipality or a cantonment.

(2) An area in respect of which such a notification has issued is hereinafter called a notified area."

Section 389 enables the State Government to impose taxation in, apply enactments to and constitute committee in the Notified area.

This section reads thus :

"389. Power to impose taxation in, apply enactments to and constitute committees in, notified area.- Th! State Government niay by notification :-

(a) apply or adapt to a notified area or to any part of a notified area any provision of this Act which may be applied to a municipality, or any rule or by-law in force or which can be made in any municipality under this or any other Act;

(b) impose in a notified area or in any part of a notified area any tax which could be imposed by the Commissioners if the notified area were a municipality; and

( c) appoint or make rules for appointment or election of a committee to carry out the purpose of this Act in the notified area."

In exercise of the powers under s. 389 by notification dated May 23, 1941, the Governor of Bihar applied to the notified area the following provisions of the Act :

"Chapter I Section 3.

Chapter II Sections 21-27, 29-48, 51-52 dauses (b),

(c) and (d).

Chapter III Sections 58-78 and 81.

Chapter IV Sections 82(1)(b), (c), (f), (il, (j) and Sections 82(2), 84, 86-88, 98-150, 154-163.

The whole of Chapters V, VI, VII, VIII and X.

Chapter XI section 340, 341 and 342-343.

The whole of Chapters X!I and XIII." The Act was amended by the Bihar Municipal (Amendment) Act,

1953 (Bihar Act XXXII of 1953 ).

It inserted cl. (ff) in sub-s. (I) of s. 82, which reads as follows :

''82. Power to impose taxes.- ( I J The Commissioners may, from time to time, at a meeting convened expressly for the purpose, of which due notice shall have been given, subject to the provisions of this Act and with the sanction of the State Government, impose within the limits of the municipality the following taxes and fees, or any of them :-

(ff) a tax on the trades, professions, callings and employments specified in the Fourth Sc; hedule at such

rates i!Ot exng the rate~ specified therein as may from time to time be determined by the Commissioners

at a meeting;

Provided that the rates determined by the Commissioners at a meeting shall be subject to the approval of the State Government and subject to such modification in the rates of taxes and exemption of classes of profes- 'ion, trades and callings to be taxed as the State Gov ernment may direct." Proviso (iv) was added to sub-s. (1) of s. 82 of the Act by Bihar Act III of 1959, and reads as follows :

"Provided that the Commissioners-

(iv) shall, if so directed by the State Government by notification, impose within limits of a municipality the taxes mentioned in clauses (c), (b), (f) or (ff) at such rates, subject to the maxima specified in sections 84 and 85 and the First and the Fourth Schedules, and from such dates, notwithstanding anything contained in this Act, as may be specified in the notification." The Bihar Municipal (Amendment) Act, 1953, also inserted Chapter IV-A, which deals with the tax on profession, trades, callings and employments.

Chapter IV A consists of s. 150A to s. 1 SOE.

Section 150A provides that the person liable to pay such a tax shall take out a half-yearly licence and pay the tax assessed on him in pursuance of clause (ff) of sub-section (1) of section 82, provided that such tax shall be imposed on the income accrued within the municipality during the year next preceding the year for which the tax is imposed. The second proviso exempts persons whose taxable income does not exceed Rs. 1,500 per annum or the value of whose place of business does not exceed Rs. 10 per mensem or whose income from employment does not exceed Rs. 2,400 per annum. The explanations to s. lSOA may be set out:

"Explanation ( 1 )-The taxable income of any person liable to pay the tax under this section shall be deemed to be the amount computed in accordance with the provisions of the Indian Income Tax Act, 1922, and where any such person is not subject to assessment of income-tax under the said Act, his taxable income shall be the amount which shall be computed, so far as may be. in accordance with the procedure laid down in the said Act.

Explanation (2).-The onus of providing e amounts of tile taxable income computed under the said

B i

D '

RAM BACHAN LAL V. JllllAR (Sikri, /.)

Act shall lie on the person liable to pay the tax under this section.,.

Section I SOB enables the Commissioners to call for information.

Section I SOC renders statements and returns furnished under s. !SOB confidential.

Section !SOD, which deals with the application of money received from tax on professions, trades, callings and emplo)Qllents, reads thus :

"!SOD. All moneys collected by the Commissioners, on account of a tax on professions, trades, callings and employments imposed under clau~ (ff) of sub-section

(1) of section 82, shall- ( 1) in any municipality in which there is a provision for the supply of piped water, in accordance with a scheme for water-supply sanctioned under section 292, be applied notwithstanding anything contained in this Act and after deduction of such proportionate share of the cost of collection and supervision as the Commissioner at a meeting may fix, in whole or in part and subject to such conditions and exceptions, if any, as the State Government may direct, in defraying the expenses on account of extending or maintaining the water supply and in repaying or paying interest on debts incurred in connection with the scheme of the said water-supply and where only a part of the proce.eds of the tax is so applied, the balance shall form part of the municipal fund; ( 2) in any other municipality in which there is no such provision for the supply of piped water form part of the municipal fund."

Section I SOE provides for review in the following terms:

"!SOE. Application for review.-(1) Any person who is dissatisfied with the assessment of the total income or taxable income or the determination of the amount of tax payable by him or who disputes his liability to be assessed may apply to th.e Commissioner to review the assessment of his total income or taxable income or the amount of tax assessed upon him or to exempt him from the liability to be assessed.

(2) Every application presented under sub-section ( 1) shall, as nearly as may be, be heard and determined in accordance with the procedure laid down in sections 11 S, 117, 118 and 119, as if such applications were applications presented under section 116." On March 1, 1957, the Governor of Bihar applied the provisions of cl. (ff) of sub-s. (1) of s. 82, and sections lSOA to

SUPRBMB COURT REPORTS

lSOE, of the Act to the Dehri-Dalmianagar Notified area. It appears that the petitioner was not aware that these provisions had been applied to the Dehri-Dalmianagar Notified area.

On March 4, 1957, the Governor of Bihar sanctioned the unposition by the Dehri-Dalmianagar Notified area Committee of the tax on trades, professions, callings and employments.

The notification provided that the tax shall be levied at the maximum rates specified in the Fourth Schedule of the Act.

On March 23, l 959, the Governor of Bihar, in exercise of the powers conferred by proviso (iv) to sub-s. (1) of s. 82 directed the Commissioners of the Municipalities as well as the Notified Areas Conunittees specified in the Schedule, which i:icluded Dehri-Dalmianagar Notified Area Committee, to levy tax mentioned in cl. (ff) of sub-s. ( 1) of s. 82 at the maximum rates specified in the Fourth Schedule to the said Act with effect from April 1. 1959. Thereupon the Dehri-Dalmianagar Notified Area Committee imposed the profession tax and sent separate demand notices to the petitioner for the years 1963-64. 1964-65 and 1965-66, and later sent the impugned demand notice covering all these three years.

Number of points had been raised in the petition but Mr.

B. Sen, the learned counsel who appeared for the petitioner, has raised only two points before us.

He urged ( 1) that ss. 388 and 389 of the Act violate art 14 of the Constitution, and (2) that s. 82{1) (ff), ss. lSOA to lSOE. and the Fourth Schedule offend arts. 14, 19(g) and 31 of the Constitution.

Regarding the first point, the ground of attack was that ss. 388 and 389 give arbitrary power to the Government either to constitute a municipality under s. 4 of the Act or to constitute a notified

area committee under s. 388.

It would be noticed that the Notified Area Committee was constituted as long ago as 1942.

Without deciding the point, we a>wme that Mr. B. Sen is entitled to challenge the validity of ss. 388 and 389.

It seems to us that there is no substance in this point.

Section 4(1) (a) and

(b) provide as under :

"4. Declaration of intention to constitute or alter limits of municipality.-

( 1) (a) When the State Goverrunent is satisfied that three-fourths of the adult male population of any town are engaged on pursuits oer than agriculture and that such town contams not less than five thousand inhabitants, and an average number of not less than one thousand inhabitants to the square mile of the area of such town, the State Government may declare its intention to constitute such town, together with or exclusive of any railway station, village, land or

building in the vicinity of such town, municipality, ll!ld to extend to it all or any of the provisions of this Act.

(b) When the State Government is satisfied that any municipality, or any area in a municipality, does not fullil the conditions specified in clause (a), or when the Commissioners at a meeting have made a recommendation in this behalf, the State Government may declare ; ts inten 10n to withdraw such municipality from the operation of this Act, or to exclude such area from such municipality."

It would be noticed that s. 4( 1) contemplates a town containing not less than five thousand inhabitants and a town of a particular density of population, and further that three-fourths of the adult male population should be engaged in pursuits other than agriculture.

Now, these requirements show that the area has reached such a stage of development that the government should constitute a municipality in the area.

Section 388 would come into the picture only if the requirements of s. 4 are not satisfied but yet the Government considers it necessary to make administrative provisions for all or any of the purposes of this Act.

In our opinion, this gives sufficient guidance to the Government and thus no arbitrary power has been conferred on the Government.

Coming to the second point, s. 82 is challenged on various grounds. First, it is said that the proviso to s. 82 ( 1 )(ff) enables the Government to exempt any class.es of profession, trades or callings from the tax, without giving any guidance as to which classes should be exempted.

We do not find it necessary to deal with this academic point because, first, the Government has not exercised this power and, secondly, even if we were to hold this proviso to be violative of art. 14, it would be severable and would not give any relief to the petitioner. The second ground of attack is that the rate of tax to be levied has been left to the discretion of the Commissioners under s. 82 ( 1 )(ff) and of the Government under proviso (iv) to s. 82(1) without giving any guidance as to the amount of tax.

We see no force in this contention.

Schedule IV specifies the maximum amount of tax that can be levied and s. 1500 lays down the purposes for which the tax can be utilised.

This, in our view, gives sufficient guidance to the Commissioners or the State Government to fix the rate of tax. In The Corporation of Calcutta v. Liberty Cinema(') this Court, by majority, upheld the validity of s. 548 of the Calcutta Municipal Act.

Speaking for the majority, Sarkar J., as he then was, observed :

"It seems to us that there are various decisions of this Court which support the proposition that for a

(I) /1965J 2 S. C.R. 477.

8 StlPl.U!MB COtJ&T lllPOJlTS [1967) 3 s.c.R.

Statutory provision for raising revenue for the purposes of the delegate, as the section now under consideration is, needs of the taxing body for carrying out its functions under the statute for which alone the taxing power was conferred on it, may afford sufficient guiducc

to make the power to fix the rate of tax valid."

Ia view of these observations it is clear that s. 1500 gives sufficient guidance to the Commissioners and the State Government to fix the rate of taxation.

Mr. Sen then urged that proviso (iv) to s. 82(1) is void becailse it does not give any indication as to the circumstances under which the Government should direct the Commissioners to levy the tax under s. 82( 1) (fl). lt seems to us that the Govern ment will only direct the Commissioners to levy the tax if the Commissioners do not carry out their duty properly.

C'hapter XIII of the Act, which has been applied to the Notified Areas, confers powers of control on the State Govenunent over the Notified Areas and the Government would only act under proviso

(iv) to s. 82 ( 1) if it is necessary in view of the circumstances of the case.

Mr. B. Sen then argued that the Act does not lay down proper procedure for the assessment and the determination of the ta"t.

We see no force in this contention.

We have already set out the explanations to s. 150A. Explanation (1) clearly provides that if a person is assessable to income tax under the Indian Income-tax Act, 1922, .his taxable income would be determined

according to the provisions of the Indian Income-tax Act, and if hc:is not assessable, his taxable income would be computed as far as may be in accordance with the procedure laid down in the said Act.

Some complaint was made about Explanation (2) that unnecessary burden was being placed on the person liable to tax, but we are unable to appreciate this point.

The :issessec has only to produce the order from the a:isessing authorities to establish the amount of his taxable income.

The last complaint was that no appeals or references .ire G provided in the Act and the. only remedy of an assessee who was aggrieved by the assessment is to file a review under s. 150F.

In the circumstances we consider that s. 150E gives a reasonable remedy to an aggrieved person.

Sub-section (2) of s.

!SOE directs that the application has to be heard and determined in accordance with the procedure laid down in ss. 115, 117, 118, and

119. These sections have been applied to the Notified Area Com- H mittees. Under s. 117 a review would be heard by a Committee consisting of not less than three Commissioners 'and the Committee is further entitled to take evidence and to make such enquiries as

)- ..

it deems necessary. The subject-matter of Profossion Tax is not very complicated and, in our view, the procedure provided for the assessment and review is reasonable.

We may mention that similar points were raised before the Patna High Court and the High Court . rejected them in Rohtas Industries Ltd. Dalmianagar v. State of Bihar(').

In the result the petition fails and is dismissed with costs.

Y.P.

Petition dismissed.

(I) [1965] Bihar L.J.R. 886.

USupCI/67-2

RAM BACHAN LAL

THE STATE OF BffiAR

February 28, 1967

K. SUBBA RAo, C.J.

C. SHAH

S. M. SIKRI

RAMASWAMI

Bihar and Orissa Municipal Act

Ss.

82(1)(1!), 1S

Arts. 14, 19 & 31

Art. 32

Arts. 14, 19 and 31

Ss. 388 and 389

s. 4

s. 388

s. 82(1)

s. 82(1 )(ff)

s. 150E

Sections 4 and 388

Section 4(i)

Section 388

s. 4

Schedule IV

s. 150

[1965] 2 S.C.R. 477

S. 150

S. 150

Ss. 115, 117, 118 and 119

Art. 32

Constitution of India

B. Sen

K. K. Sinha

B. P. Jha

Sikri

art. 32

Ram Bachan Lal

Roh!as Industries Ltd.

Dalmianagar

arts. 14, 19 and 31

May 23, 1942

s. 388

Section 388

Section 389

s. 389

May 23, 1941

Bihar

Section 3

Sections 21

Sections 58

Sections 82(1)(b)

Sections 82(2), 84, 86

section 340, 341 and 342

Bihar Act XXXII of 1953

s. 82

s. 82

Bihar Act III of 1959

sections 84 and 85

Fourth Schedule

s. 150A

s. 1

Section 150A

section 82

section 82

section 292

sections 11

section 116

March 1, 1957

s. 82

March 4, 1957

Fourth Schedule

March 23, l 959

s. 82

s. 82

Fourth Schedule

April 1. 1959

B. Sen

ss. 388 and 389

art 14

s. 82

Fourth Schedule

arts. 14, 19(g) and 31

ss. 388 and 389

s. 4

s. 388

ss. 388 and 389

Section 4(1)

s. 4( 1)

Section 388

s. 4

s. 82

s. 82

art. 14

s. 82

s. 82(1)

Schedule IV

s. 1500

s. 548

Sarkar

U!MB COtJ&T lllPOJlTS [1967) 3 s.c.

s. 1500

Sen

s. 82(1)

s. 82( 1)

s. 82

s. 150A

Indian Income-tax Act, 1922

Income-tax Act

s. 150F

s. 150E

ss. 115, 117, 118

s. 117

Patna High Court


ORIENT PAPER MILLS LTD.

UNION OF INDIA.

March 16, 1967

[M. HIDAYATULLAH, S, M. SIKRI AND C. A. VAIDIALINOAM, JJ.]

C1hlrol Excls1 Act, 1. 4 and Cintra! Exe/st Rul11 1944 r, 9 and r. 9A- Good1 re1nov1d from factory afttr pll)'mlnt of dury-Chan111 In rat• of duty-Crucial tlm1 /or chang1d ra11 to apply, wh1tla1r paytMlll of dury nr r1moval of 1ood1.

The 1ppell1111 company curried on In the State of Orina the buslne" of manuf1cturln1 ind ielllng piper und board1.

It held n l'cnce In Porm L.4 under the Olntrlll Excl11 Act H/rucrlbed by the Central llxclH

lllll11 .. 1944. The company'• !oelory 1n Ill praml1e1 ware demucllled under the 11111 R11l11. The F1ctor1 1riioy1.t the boneftt or 1 prlvMe r1:1w1y

11dl111 Ill th• factory uu. In 1960 1 ntw aiding w11 con111i1cted out• 1ld1 the orl1ln1I factory preml111; the comp1ny'1 req11ut to Iha 1!10111 0111horltl11 10 amend 111 lfc1ne1 ao 11 to lneludo tho new r1ilwny 1ldi11t In

the factory 1111 WH r1fu11d. On Pubnmy 27 and 28, 1961 the eomp1111y loaded aome w1ao111 of paper after 1lflotln1 cle1nnce ol 11me aoodll by 11aymt11t of axoflt duty under r. 52 of the l!xclM Rlll11. The w1gon.1 th111 pauld Into the h1nd1 of railway Admlnl1tratlon but 11 a pllot eniln• w11 not available they were ahunted Into the new 1ld:na. On Mllfcli I,

1961 new r1111 of 11oll1 duty came Into foroe and tho Deputy S11p11rln tmd111t of Ctntral !xcl11 demanded extra duty OD the wa1on1 loadild on

February 27 and 2BL 1961 on the around that thuy wrre found In the faotory1, nm1 .. 1111 ~.45 a, m, oD March I, 1961. The comp1111y nlylna on r. l of the l!xol11 RulH 1ubmlt11d that the duty wu payable al Iha r111 In fom on th• date on which tho duty wu actulllly paid, 1n tba lll11rn1tlv1 It 1ubmlt1td that the 1ood1 havlnt bten clnnd an.cl remowd from the factory premll11 blfor1 t11t mldnlabt of l'tbruary 28, 1951, could not ht made llablt for tht tnh1natd duty which 011m1 Into force on Man:h

I, 1961. The oonten1lon1 w111 not aoHpttd by the Otputy S11p1rl111tn, dtlll, H:ahar dtpll'lmtnllll 1uthorltl11 1110 reJeotod thtm. Th• company then ftlo; r 1n 1ppl'o1tlon for revl1lon b1.ftlr1 the Oovtrnment of India Thl1 &llO b1ln1 l'ljlCtod lh• oomp1ny IPPtAl1d by IPlllllAI luve to lhlt!

Court,

I HILD I (I I In tht OAll of m1111utao1u11d 1ood1, aooordlng 10 Ill• pro• v !lllhlu r, II, th1 payment of tho duty and the olar111oe of aooo1 m1y bl! 1yno l'llllOll~ or !lie 111ymtnt may ht po1tpontd nlthOllAh th.e good1 my lit ramovld, In tho !&lier Hilt, tintlor lho 11aond p1rt Cit r. VA lbe arltlCAI I!.'!'' I b1oom11 th• rtmoval of tht aood1 from the laoto!')' or wat'lho\180; ""' f th1 p1ym1n1 of du!Y 11 m1d1 btlOH lht r1mov1L then 1111d1r llw ""I Pll'I of r, VA lht orllloal tlmt 11 lht p1ym1nt of d11iy, [2U CJ

• !.!!.dbt 11111 that lht ftrat pan of r. 9A r1l1l18 10 urunanufaetur• ... ...- an 1111 1IOOllCI p&rl to m1nllf1orurte1 loodl [212 Pl

I (II) fn lht pmtnt 0111 lht payment of duty w11 1ynohronou1 with the e 14r1Dot of !lit l@llll1 hto111111 Iii• pit p1111 1111d1r r. 52 llllll only bo l11ued wfhon Ille IOOd8 b1v1 1011111lly bteti olwld for removlll. The pay ment o duly Mil lbt removlll Of tb1 IOOd1 had both betn efltOttd bttore lht oh1n11 In lht, r1t1 of duty, Th• rtoovery ot enb1nolltl duty fl'Olll lht 1pp11l1nt OOl!IPIDY Wll tlltl'lfOH. trrontou1. riu !), Ol

SUPREME COURT REPORTS

[1967] 3 S.C.R.

(iii) The Excise authorities had themselves refused to recognise the new railway siding as part of the factory and it could not therefore be said that the wagons being in the new siding must be treated as stiJI in the factory. [213 F] CIVIL APPELLATE JURISDICTION : Civil Appeal No. 30 of 1966.

Appeal by special leave from the order dated June 7, 8, 1963 of the Government of India, Ministry of Finance (Department of Revenue) in Central Excise Revision Application No. 463 of 1963.

B. Sen, Bishan Narain and B. P. Maheshwari, for the appellant.

S. V. Gupte, Solicitor-Genera/, S. G.

Patwardhan,

R. N.

Saththey, and S. P. Nayyar, for the respondent.

The Judgment of the Court was delivered by Hidayatullah, J.

The appellant is a public limited company which carries on the business of manufacturing and selling wholesale, paper and boards at Brajrajnagar in the State of Orissa. The appellant company holds a licence under the Central Excise Act in Form L-4 prescribed by the Central Excise Rules, 1944. The appellant company's factory and its premises and precincts have been demarcated under th~ said Rules. The Factory is traversed qy railway lines, because the appellant company enjoys the benefit of a private siding. In 1960, the appellant Company constructed a new railway siding outside the original factory premises where bamboos and other raw materials were stored and constructed a . platform for loading and unloading.

This extension has not been included in the factory or its premises or precincts for purposes of the Excise Rules.

It is presumably so, because. to reach the new siding, a public road has to be traversed which is not enclosed .and from which public cannot be excluded. It is in evidence that after this new siding was constructed, the appellant company requested the Excise authorities to amend the licence to include the new railway siding;· but this was refused.

On February 27, 1961, the appellant company loaded 20 wagons of paper after effecting clearance of these goods by payment of the excise duty under r. 52 of the Excise Rules.

On February 28, 1961, the appellant company loaded 13 more wagons and cleared them. These wagons were sealed by the railway administration and railway receipts were issued to the appellant company.

The company also obtained gate pass.

The wagons then passed into the control of the railway administration., but as a pilot engine was not available, the wagons were shunted mto the new siding. . The exit from th~ new siding is only through the factory premises because the railway track comes to a dead-end nn the other side.

A The Deputy Superintendent of Central Excise wrote to the

ppellant company on March 1, 1961 that the wagons loaded on February 27 and 28, 1961 were found inside the factory premises till 9-45 A.M. on March 1, 1961 and the goods were therefore liable to be assessed at the higher rates of excise duty current from Mareh 1, 1961. The appellant company contended before B the Deputy Superintendent that the wagons were duly sealed after the completion of loading in his presence, were taken out of the factory premises and were not. in the factory when the new rates came into force. The appellant company relying upon r. 9A of the Central Excise Rules, 1944 submitted that duty was payable at the rate in force on the date on which the duty was actually C paid. In the alternative, the appellant company submitted that the goods having been cleared or removed from the factory premises before the midnight of February 28, 1961, could not be made liable for the enhanced duty which came into force from March 1, 1961.

These contentions were not accepted by the Deputy Superintendent who demanded payment of Rs. 45,475.83, from the appellant company as differential excise duty.

The amount D was paid under protest and without prejudice to the rights of appeal and representation to the proper authorities under the Excise Act.

The matter was then placed by the appellant company before the Assistant Collector, C_entral Excise, Cuttack and the company It requested that the differential duty be refunded as it had been illegally collected.

The Assistant Collector rejected the claim and confirmed the collection of differential duty. The appellant company appealed to the Collector of Central Excise, Calc\llta and Orissa but the appeal was dismissed on March 12, 1962.

The appellant company then filed an application for revision against the order of the Collector of Central Excise, Calcutta and F Orissa before the Government of India (Central Excise Revision Application No. 473 of 1963). The application for revision was rejected by the Government of India on June 7 /18, 1963. No reason was given in the order communicated to the appellant company.

The present appeal has been filed by special leave

against the last order.

The first contention in this appeal is that the order of the Deputy Superintendent confirmed by the Assistant Collector, the Collector of Excise and the Central Government was illegal and contrary to the provisions and intendment of the Central 'Excise Act and the rules framed thereunder, because under r. 9A, first part, these goods were cleared by payment of excise duty and could not be reassessed to the enhanced duty. It is further submitted alternatively that the goods were removed from the factory proper before the midnight of February 28, 1961 and therefore could

208 SIJPJ.BMB COIJJ.T J.BPOll.TS

11967) 3 s.c.11..

not be assessed to the enhanced duty even if the latter part of A rule 9A applied. A third contention that the order of the Central Government was bad because it gave no reason for the rejection of the application for revision was not pressed seriously. We shall examine the first two arguments only.

The duty of excise on paper and boards was increased by s.

B 13 of the Finance Act, 1961 (Act XIV of 1961) read with item 17 of the Schedule. Under the Provisional Collection of Central Taxes Act (XVI of 1931) this duty became payable from the .1st day of March, 1961. The question, therefore, arises whether the 11oods are to bear the old duty or the new. This question depends upon the tlme at which the quty was payable on tbe goods in this C c11111.

That In Its tum depends U!)On the true construction of r. !IA of the Central Excise Rules, 1944. The rule consists of two 1ubl'llles, but we are concerned with the first 1ubrule and first provl10 to . that subrule. The relevant portion of the rule mny be read even at thl1 1ta11e:

"9A. ( 1) Alteration of duty or tarltf v11l11111lcm.- The rate of dutY 11nd the tral! valuation (If 1111y) llP pllcable to 11ood8 cleared on payment of duty 1h11!1 be tlie rate nnd valuation (If 11ny) In force on the date on which duty ls pald, or If the 11ood1 are cleared from a f11ctory or a warehoue, on the date of the actual removal of Ruch 11oods from such factory or warehouse:

Provided that If tho aoodl have previously been removed from w11rehouMe under bond to be , rewnre hou8ed, 1111d the duty 11 pllld on 1uch SQOd8 without their belo11 rewnrehcm1ed, the nte 11nd v11luatloo (If 11ny) oppl!c11bl11 thereto 1h11!1 be the rl\te 1111d vlllm1tlon

(If 11ny) In force on the date on which duty 18 pllld or I! duty 11 p11ld 1hrou1h 11n 11ccount-eurren1 mlllnt11lo; i with thll Colleetor uniler Rule 9, on tho d111e on whleh 11n 11pplle11!1on In the proper form 18 delivered to the omcerltteliorse ot the w11rehou81.1 from whleh the 11ood8 wore removed:

" a

To u11demnnd thl1 rule nnd lt1 lmpllcll!lon1 80met111na mu1t be Mllid flr11 about the 1eheme of tho Ceotr11! Bxe!J11 nod lla1t Act, 1944 11nd the Centrnl B!iel1e Rule1, 1944. The Ceotrnl Excise Act del\nu 'exclHble go0d1' 10 menn 11ood1 1peclfled In It• Finl Schedule and 1ubjeot to 11 duty of excl111. The Act fllrther deftnH It

'ffteto~' 10 m111111 any preml1e1 Including the preclnct1 wherein exelH\; le sood1 11r11 m11nuf11cmred, or wlloreln or In 1111y p11rt of whleh 11ny mnnufneturlng proe111 connected with the proiluctlon

ORIBNT PAPBR MILLS v. UNION (H/dayatu/lah, /,) 209

A of tbee goods Is being carried on Dr ls ordinarily carried on.

'Manufacture' ls defined to lncludo any procosa ldontlcal or ancll lary to tbo completion of a manufactured product, and certain processes in relation to tobacco and 1alt aro included in manufucture, but with tbeso wo aro not concerned. It also defines 'curing' as including any process for rendering an unmanufac a turecl product fit for marketing or manufacture. Section 3 of tbe Act lays down inter alla that there shall be lovled and collected in such a manner as may be prescribed duties of excise on all excisable goods which are produced or manufactured in India at the ratea setforth in tbe Flr1t Schedule. Section 4, wblch is, heuded ''Determination. of. valuo for tho purposes of duty", pro c vides that where any article Is charpable with duty at ntes do

pendent on tbe valuo of auch article auch valuo lhal1 be .deemed to be the whole 11le ca1h price for which an article of like: kind

and quality la aold or II capable of belna aold at the time. of tho removal of the article charpablo with duty from tbe factory or any other prem1111 Of manufacture or production for delivery, etc. The emph11!1 In 1. 4 11 on the time Of removal of the article D chnr1eable with duty from the factory, Thl1 l1 tho only 1uldance

which the Act fum11he1. We may now turn to the llulea.

Under the Rulea, duty mOIDI duty payable under 1. 3 of the Act above-mentioned.

Rule 2 (xv) deftnea 'warehouie' u any plliCll or preml1ea appointed or licenaed under rule 140. We I now come to Chapter Ill which deal1 with levy and refund of 111d

.•emption from duty. Rule 7 provld11 that every penon who

prod11Cea, cures or manufactures any nolaable lo0d1 or who 11or11 111ck aood• In 11 wmho1111 1hall pay the cfuty or .dutlel levl1bl1 on 111eh good1 11 1ueh time and pl1c1 and to 111ch ~

llN m11y be dHl1n111ecl In or under the nuthorlty of the •::i: r wbelher the p11ym1111 of 1ueh duty or dutl111 11 11cul'ld by

or otherwl111. Rule 9 l11y1 down the time and m1nner of pnym1nt of duty, The r11!1 m11y be rud hart:

"9. Time Md manner of p1yment of duty.-

( I ) No exolHble aood1 1hllll be removed from Aft)' pl1ee wher1 they are J)roclueed, eured or manutaolllreil or •l!Y preml111 M1PUl'lln1nt. thereto, which may bl 1poolfted by the CO!leetor In thl1 behalf, whether for eon111mplion, export, or manufacture of any other eom modl!Y In or out1lde 1uch pl11ee, until thi excl1e duty levlable thereon ha1 been pllld at 1uch place and In 111eh m11nner 11 11 prHcrlbid In th111 Rul11 or u tho Coll1etor may l'IClU11'1l, and aoept on ent1tlon of an 1ppl1011tlon In Ill• pr fonn and on obtlllnln1 lilt penrilillon of the proper olllcer on the form:

SUPIUIMB GOWT 0101.TS

(1967) 3 S.C.R

Provided that such goods may l?e deposited without payment of duty in a store-room or other place of stor age approved by the Collector un.der rule 27 or rule 47 or in a warehouse appointed or licensed under rule 140 or may be exported under bond as provided in rule 13 :

Provided further that such goods may be removed on part payment of duty leviable thereon if the Central

Government, by notification in the Official Gazette, allow the goods to be so removed under rule 49:

Provided also that the Collector may, if he thinks fit instead of requiring payment of duty in respect of each separate consignment of goods removed from the place or premises specified in this behalf, or from a store-room or warehouse duly approved, appointed or licensed by him keep with any person dealing in such goods an account-current of the duties payable thereon and such account shall be settled at intervals not exceeding one month, and the account-holder shall periodically make deposit therein sufficient in the opinion of the Collector to cover the duty due on the goods in tended to be removed from the place of production, curing manufacture or storage. ..

This rule prohibits the removal of goods from the factory or any premises appurtenant thereto until the excise duty leviable thereon has been paid.

The factory and the premises appurtenant thereto has to be specified by the Collector. To this rule there are exceptions. One of them is that the goods may be deposited without payment of duty in a store-room or other place of storage approved by the Collector under rule 27 or under rule 4 7 any warehouse appointed or licensed under rule 140.

Another exception is that the goods may be removed on part payment of duty leviable if the Government notifies and allows the goods to be so removed or the Collector if he thinks fit, approves the opening of .an account-current of the duty payable and the account-holder periodically makes. deposits sufficient in the opinion of the Collector to cover duty due on the goods intended to be removed from the place of manufacture or storage.

As we are not concerned with export under bond we may not refer to rule 13 but it is necessary to see rules 47 and 140. Rule 47 is headed "Goods

may be stored without payment of duty" Under this rule a manufacturer has to' provide a store-room or other place of storage at his premises for depositing goods made on the same . premises without payment of duty.

Duty-paid goods and good!> -other than excisable goods made in the factory must not be

ORIENT PAPER MILLS \!. UNION (Hidaya1ullah, I.) u I

deposited in such store-rooms or place. The store-room or place must be declared by the manufacturer and approved by the Collector.

To this rule there is an exception and .it is that if the manufacturer undertakes to pay duty on all the manufactured goods and clears them immediately on completion of manufacture the Collector may exempt him from providing a store-room or other place of storage. Rule 140 deals among other matters with the appointment and licensing of warehouse.

Under this rule the Collector shall by order in writing from time to time approve and appoint a public warehouse and may in like manner license private warehouses for the stora&e of excisable goods on which duty has not been paid.

The Rules make a distinction between manufactured and unmanufactured goods.

The relevant rules may also be seen.

Rule 25 provides for unmanufactured goods and rules 52 and 52A for manufactured goods.

Rule 25 deals with clearance of unmanufactured products on payment of duty. This rule applies to a curer who may apply to an officer to get the goods weighed and duty assessed. If the duty so assessed is then paid the carer is granted a transport permit authorising him to remove the products to any destination named by him. Rule 52 deals with manu factured goods. It deals with clearance on payment of duty. The rule reads as follows :- "52. Clearance on payment of duty.- When the manufacturer desires to remove goods on payment of duty, either from the place or premises specified under rule 9 or from a store-room or other place of storage approved by the Collector under rule 4 7, he. shall make application in triplicate (unless

otherw1e by rule or order required) to the proper officer m the proper Form and shall deliver it to the officer at least twelve hours (or such other period a.~ ay be elswhere prescribed or as the Collector may

n any particular case require or allow) before it is mtended to remove the goods.

The officer shall, thereupon, assess the amount of duty due on the goods and ?n production of evidence that this sum has been paid mto. the Treasury, or paid to the account of the Collector .m the Reserve Bank of India or the State Bank of lndta, or has been despatched to the Treasury by money. order shall allow the goods to be cleared."

We ma? also refer to rule 52A which provides for the actual 1 emova_. of the goods from the factory.

The rule provides that no excisable goods shall be delivered from a factory except

nder a gate pass signed by the owner of the factory and countersigned by the proper officer.

Such a gate pass is made out in

SUPREME <;:OURT REPORTS

triplicate and must be presented to the proper officer for countersignature at least one hour before the actual removal <>f .th:e goods from the factory. In the pre8ent case a gate pass had been obtained.

Rule S 1 A then provides that except as otherwise expressly provided for in the Rules, no duty-paid goods shall be allowed to re-enter or be retained in, any part or premises of factory.

We may now tum to rule 9A, the interpretation of which has given rise to the present case.

The dispute, shortly stated, is as to the application of the two

part~ of Rule 9A.

According to Mr. B. Sen for the appellant company, the first part applies where duty is paid and the goods cleared and in such a case the critical point of time is the payment of duty and the point of time of the removal from the factory is not relevant.

In the second part, according to him, the critical time is the removal of the goods from a factory or warehouse without payment of duty such as happens when they are removed under the provisos to Rule .9A.

In this view of the matter he contends that this case falls within the first part of Rule 9A.

On the other hand, the learned Solicitor General on behalf of the Union of India submits that the main rule is in the first part and the second part of the rule is an exception. He suggests that one part speaks of payment of duty and the other of removal and the difference in point of time is between clearance of duty in the case of unmanufactured goods and the actual removal of the goods from the factory or warehouse ia the case of manufactured goods.

To prove his point he. emphasises the separate provisions regarding manufactured goods in Chapter V and unmanufactured goods in Chapter IV of the Rules.

In our opinion Rule 9A cannot be read on the basis of the classification suggested by the Solicitor General. No doubt rules 9 and 9A apply to manufactured as well as unmanufactured goods because rule 9 speaks in terms of both and rule 9A mentions in one place goods without adverting to the source and in the other the factory or warehouse.

But the distinction in the two parts of rule 9A cannot be founded on the basis. of a difference to be found in Chapters IV and V of the Rules.

Rule 25 allows the clearance of unmanufactured products on payment of duty but rules 26 and 27 allow such products to be despatched to a bonded warehouse or to be deposited in a curer's bonded storeroom.

A special rule applies to the latter goods deposited in the store-room.

They must be cleared on payment of duty ordinarily before the 30th day of June (extend~ to 31st. Dece.mber under certain conditions) of the year followm_g that m which they are harvested or deposited. On the other hand, under rue

49 payment of duty is not required in. respect of goods made m a factory until they are about to be issued out of the .place or

premises specified under rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector.

The only exception to this is their removal to a licensed warehouse. Rule 52 then says that when the manufacturer desires to remove goods on payment of duty from .the factory or store-roo~ or other place of storage, he can get the duty assessed, pay 11 and get a clearance and a gate pass. He must then remove the goods and such goods must not lie in che factory etc. or after removal re-enter the premises (vide r. 51A).

It will thus be seen that in the case of manufactured goods the payment of duty and. the clearance of goods may be synchronous or the payment may be postponed although the goods may be removed (provisos to r. 9). This immediately sets up two kinds of cases in respect of manufactured goods. The critical time thus becomes the removal from the factory or ware.house but if the payment of duty is made before the removal then the critical time is the payment of duty.

In the present case the payment of duty was synchronous with the clearance of the goodS

because the gate pass can only be issued when the goods have actually been cleared for removal.

The above construction of the Rules agrees with the construction placed by the Board of Revenue in its ruling of 1957 when the effect of the sealing of the wagons by the Railway after loading and the issuance of railway receipts was considered. The Board ruled that such goods would not be considered as lying in the stock in the factory pcem.ises.

When we add to it the fact in this cast: that duty was paid on the goods and gate pass was also issued, there remains little to argue except to say that the wagons being in the new siding must be treated as still in the factory.

Here the difficulty in the way of -the Union of India is that the Excise authorities themselves refused to recognise this portion as part of the factory. 1f !he goods were put in the wagons after payment of duty, and the wagons were sealed and shunted out of the factory proper on a gate pass, not only under the ruling of the Board but also on the application of the Rules as explained here these goods became free of the enhanced duty. The recovery was accordingly erroneous.

The duty collected must, therefore, be refunded and we order accordingly. The appellant's costs must be paid by the respondent.

G.C.

Appeal a//oowetf_

ORIENT PAPER MILLS LTD

UNION OF INDIA

March 16, 1967

M. HIDAYATULLAH

M. SIKRI

B. Sen

Bishan Narain

B. P. Maheshwari

S. V. Gupte

S. G.

Patwardhan

R. N.

Saththey

S. P. Nayyar

Hidayatullah

Brajrajnagar

Orissa

Central Excise Rules, 1944

February 27, 1961

February 28, 1961

March 1, 1961

February 27 and 28, 1961

Mareh 1, 1961

Central Excise Rules, 1944

March 12, 1962

Calcutta

Government of India

June 7 /18, 1963

Central Government

Finance Act, 1961

.1st day of March, 1961

IA of the Central Excise Rules, 1944

Section 3

India

Section 4

Reserve Bank of India

State Bank of lndta

S 1

B. Sen

Union of India

Chapters IV and V of the Rules


COMMISSIONER OF INCOME-TAX, BOMBAY A

M/S. WALCHAND & CO. (PVT.) LTD., BOMBAY

March 17, 1967

[J. C. SHAH, S. M. SIICRI AND V. RAMASWAMI, JI.]

lndia11 Income-tax Act (11 of 1922), ss; 10(2)(xv) and 33(4)- lncrease in Director's remuneration not reflected in assessee's profiJs-lf .allowable.

Appellate Tribunal-Jurisdiction-Reasons in support of decision, if .11eces1ary.

The Income-tax Officer disallowed the increase in the remuneratloa of the Directors and Officers of the asses9ee-company sinoe the increase was not reflected in the increase in the profits of the assessee and wo on 111at

account not expenditure laid out wholly and exclusively for the purpoilel of the business under s. 10(2) (xv) of the Income-tax Act. The onl" was modified by the Appellate Tribunal. On reference the High Court IUUll'er -ed the question aga:nst the Revenue, holding that the Tribunal acted with

•out evidence in partially disallowing the increase in respect of aierlain officers, In appeal to this Court, HEID : The appeal must be dismissed.

The practice of recording a decision without reasons in support cannot but be severely deprecated.

Though the Tribunal is not a Court, it is

invested with judic:al power to be exerci>ed in manner similar to the E •exerci>e of power of an appellate .Court acting under the Code of Clvil Procedure.

Authority to ''pass such orders thereon. as it thinks fif' in s, 33(4) of the Income-tax Act, 1922 is not arbitrary; the expression i9 intended to define the jurisdiction or the Tr:bunal to deal with and determine questions which arise out of the subject-matter of the appeal in the light of the evidence, and consistently with the justice of the case.

Jn the hierarchy of authorities the Appellate Tribunal is the final factfinding body : :ts decioions on questions of fact are not liable to be F questioned before the High Court.

[216H-217C) When a claim for allowance under s. 10(2) (xv) of the Income4ax Act is made, the Income-tax authorities have to decide whether the cx- .PenditUre claimed as an allowance was incurred voluntarily and on grout!ds of commrcial expediency. In applying the test of commercial expediency for detennining whether the expenditure was wholly and exclus"vely laid -0ut for the purpose of the business. reasonabJen-ess of the expenditure must G be adjudged from the point of view of the businessman and not of the Revenue.

An ·mployer in fixing the remuneration of his employees is entitled to consider the extent of h:s. business, the nature of the duties to bo performed, and the special altitude of the employee, future prospects of cXtension of the business and a host of oher related circumstances. The rule that increased remuneration can only be justified if there be corresponding increase in the profits of the employer is erroneous,

[217F- H

218B]

CIVIL APPELLATE JURISDICTH?N : Civil Appeals Nos. 279 and 280 of 1966.

C.I.T. V. WAI.CHAND & CO. (Shah, J.) 215

A Appeals by special leave from the judgment and order dated September 4, 1962 of the Bombay High Court in Income-tax

Reference No. 23 of 1961.

S. K. Mitra, T. A. Ramachandran, S. P. Nayyar for R. N.

Saclzthey, for the appellant (in both the appeals).

J. B. Dadachanji and 0. C. Mathur, for the respondent (in both the appeals).

The Judgment of the Court was delivered by Shah, J. The respondent (hereinafter called 'the assessee') is a private limited Company registered under the Companies Act, 1913.

The assessee carries on the business of acting as Managing Agents for nine public limited Companies.

The business of ! he assessee was managed by three Directors.

Each Director was paid a remuneration of Rs. 2,500 per month.

The assessee lmd employed three executive officers to administer its affairs.

By resolution dated July 9, 1952, the remuneration of each of the Directors of the assessee was increased with retrospective effect from April 1, 1952 by Rs. 1,000 per month and of two out of the three officers by Rs. 500 per month and of the remaining officer by Rs. 750 per month. In the year 1953 the remuneration of each of the Directors was increased by Rs. 500 per month :md of each of the officers by Rs. 250 per month.

In proceeding3 for assessment of income for the years 1953-54 and 1954-55 the Income-tax Officer called upon the asscssee to show cause why the increase in the remuneration of the Directors and officers should not be disallowed in the computation of the taxable income of the assessee.

The assessee submitted that the managed Companies had considerably increased the area and activities of the business and they had undertaken new lines which entailed greater burden on the Directors and officers of the assessee.

The Income-tax Officer disallowed the increase in the remuneration of the Directors and officers of the assessee.

He was of the view that since the increase in the remuneration or the salary of the officers "was not reflected in the increase in the profits of the assessee", it was not expenditure which could be justified as laid out wholly and necessarily for the purposes of the business under s. 10(2)(xv) of the Indian Incometax Act.

In appeal, the Appellate Assistant Commissioner confirmed the order. The Income-tax Appellate Tribunal modified the order of assessment.

The Tribunal observed that "it was not for the Income-tax Officer to run the assessee's business and to fix the

alary of every member of the staff.

That, however, does not mean that it is open to an assessee to allow unreasonable rise in the salaries without a valid reason. It may amount to giving a gift in the garb of a salary" The T1ibunal then directed that

considering the salaries previously drawn by the Directors, "salary A at the rate of Rs. 4,000 per month in each case be allowed as a revenue deduction".

In making this order the Tribunal apparently lost sight of the fact that in the account year 1952-53 the Directors received Rs. 42,000 as remuneration for the whole year. and it was only in the year 1953-54 that the Directors received Rs. 48,000 as remuneration. The Tribunal also directed that in B regard to each employee increase in salary not exceeding Rs. 3,000 per annum as compared to the preceding year's assessment be allowed as a permissible deduction. The Tribunal gave no reasons for disallowing the balance of the salary paid to the tl!ree officers.

The Tribunal submitted tl!e following question for determination of the High Court of Bombay :- C

"Whether on the facts and in tl!e circumstances of the case the Tribunal acted witl!out evidence in disallowing Rs. 30,000 (Rupees thirty thousand) ?" ·

The High Court was of the view tl!at the Tribunal acted without evidence in partially disallowing the increase in tl!e remuneration of the three executive officers during the assessment years 1953-54 and 1954-55. The Commissioner of Income-tax has appealed to this Court, with special leave.

The assessee claimed the additional remuneration paid to the Directors and tci the executive officers as a permissible allowance under s. 10(2) (xv) of tl!e Indian Income-tax Act, 1922 which reaJs :

"Such profits or gains shall be computed after making the following al1C1Wances, namely :-

(xv) any expenditure not being an allowance of bbe nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of such business, profession or vocation." G

The remuneration paid to the executive officers was not of the

nature allowable under els. ( i) to (xiv) : nor was it of the nature • of capital expenditure, or personal expenses of the assessee. The Income'tai; Officer disallowed the entire increase in the remuneration holding that it was not expended "wholly and necessarily" H for the purpose of such business. The Tribunal without recording any reasons partially disallowed the amount as a permissible deduction.

It is necessary to emphasiz.e that though the Tribunal

C.l.T. v, WALCHAND & CO. (Shah, J.) 217

is not a Court, it is invested with judicial power to be exercised in manner similar to the exercise of power of an appellate Court acting under the Code of Civil Procedure.

Authority to "pass such orders thereon as it thinks fit" in s. 33 ( 4) of the Income"tax Act, 1922, is not arbitrary : the expression is intended to define the jurisdiction of the Tribunal to deal with and determine. questions which arise out of the subject-matter of the appeal m the light of the evidence, and consistently with the justice of the case.

In the hierarchy of authorities the Appellate Tribunal is the final fact-finding body; its decisions on questions of fact are not liable to be questioned before the High Court.

The nature of the jurisdiction predicates that the Tribunal will approach and decide the cae in a judicial spirit and for tl!at purpose it must indicate the disputed questions before it with evidence pro .md con and rerord its reasons in support of the decision.

The practice of recording a decision without reasons in support cannot but be severely deprecated.

In paragraph 2 of their order the Tribunal correctly set out the principle applicable to claims for deduction of expenditure incurred in payment of remuneration to its employees by the assessee.

But for partially rejecting the claim for allowanc~ of the amount paid, no reasons were recorded. If the Tribunal was satisfied that the expenditure was laid out or expended wholly and exclusively for the purpose of the business of the assesee tbere wa; no reason why the full amount expended should not have been allowed. It is open to the Tribunal to come to a conclusion either that the alleged payment is not real or that it is not incurred by the assessee in the character of a trader or that it is not laid out wholly and exclusively for the purpose of the business of the assessee and to disallow it. But it is not the function of the Tribunal to determine the remuneration which in their view should be paid to an employee of the assessee. When a claim for allowance under s.

10(2)(xv) of the Income-tax Act is made, the Income-tax authorities have to decide whether the expenditure claimed as an allowance was incurred voluntarily and on grounds cf commercial expediency.

In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the Revenue. The Income-tax Officer was of the view that there was no adequate increase in the earnings of the assessee, for the increase in remuneration was not reflected in the increase in profits of the assessee and that it appeared that as compared to the previous years, the business profits disclosed y the assessee had fallen by Rs. 2 lakhs an<:! therefore the increase

m expenditure could not be justified as laid out wholly and necessarily for the purposes of the business. But an employer in fixing the remuneration of his employees is entitled to consider the extent

of his business, t, be nature of the duties to be performed, and the special aptit1J, C1;1of th6 employee, future prospects of extension of the business and a host of other related circumstances. The rule that increased remuneration can only be justified if there be corresponding increase in the profits of the employer is, in our judgment, erroneous.

The Tribunal did not agree with the view of the Income-tax Officer. That is clear from the observations made in paragraph 2 of their order. But, without assigning any reasons, the Tribunal allowed the claim only partially.

The High Court on a careful consideration has pointed out that the work of the assessee has increased considerably and has become more strenuous by reason of the prosperity of the managed Companies and ii would be reasonable and natural to infer that "the strain on both the Directors and the top executives had increased justifying increase in their remuneration". In their view the fact that additional remuneration was not sanctioned in favour of other executive officers is by itself not a ground for regarding the expenditure incurred as otherwise than wholly and exclusively laid out or expended for the purpose of the business. We agree with the High Court that the order of the Tribunal disallowing the claim for allowance of the whole of the additional remuneration was not supported by any evidence.

The appeals therefore fail and are dismissed with costs. One hearing fee.

Y.P.

A ppea/s dismissed.

COMMISSIONER OF INCOME-TAX, BOMBAY

S. WALCHAND & CO. (PVT.) LTD., BOMBAY

March 17, 1967

C. SHAH

V. RAMASWAMI

Income-tax Act

s. 10(2)

Income-tax Act

Income-tax Act, 1922

s. 10(2)

CIVIL APPELLATE JURISDICTH?N

C.I.T. V. WAI.CHAND

Shah

S. K. Mitra

T. A. Ramachandran

S. P. Nayyar

R. N.

Saclzthey

J. B. Dadachanji

0. C. Mathur

July 9, 1952

April 1, 1952

s. 10(2)(xv)

High Court of Bombay

s. 10(2)

Indian Income-tax Act, 1922

the Code of Civil Procedure

s. 33

s.

10(2)(xv)

Income-tax Act