41. In accordance with the opinion of the majority, the appeals are allowed with costs here and in the High Court. One hearing fee.
42. Appeals allowed.
43. We are here not concerned with sub-section (3) as admittedly all the partners of the firm are resident within the meaning of the Act. It is the argument of Mr. Joshi that having regard to the provisions of sub- section (1) of section 182 of the Act, the assessment of the assessment of the partners of the firm are the integral parts of an assessment as a whole. In respect of the income of the firm assessment proceedings had been taken and that makes the firm an 'assessee' within the meaning of section 2(7) of the Act. Under the scheme of the Act, the income of the firm is taxed in the hands of its partners and those assessment orders have also been made in the individual assessment of the various partners including the partner, Bajranglal, but nothing could be recovered from Bajaranglal. Therefore, by reason of the provisions of section 187 of the Act, the tax liability of Bajranglal has become recoverable from the firm. Under section 156, to enable the Income-tax Officer to serve a notice of demand, only two ions of this section, the above mischief which was sought to be remedied will have to be borne in mind.
44. Turning now to be interpretation of the relevant provisions of section 40A, it is clear that sub-section (1), which contains a non-obstante clause, is an overriding provision which operates to set aside as no longer valid anything to the contrary contained in any other provision of the Act relating to the computation of income under the head 'Profits and gains fo business or profession'. In other words, the legislature has made it clear that the provisions of section 40A will apply in supersession of the other contrary provisions of the Act relating to the computation of income under the aforesaid head. Sub- section (3) deals with one of the cases in which an expenditure incurred by an assessee has to be disallowed even if it is allwoable under the other provisions of the Act. The said sub-section, in effect, provides that where any expenditure is incurred by the assessee in respect of which payment is made after March 31, 1969, in a sum exceeding Rs. 2,500 otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction. This is a mandatory directive given by the legislature to the taxing authoryt and, so its plain terms, it commands such authority to disallow all expdenditure, even if it is otherwise admissible, if the payment in respect of such expenditure, in case when it exceeds Rs. 2,500, is made otherwise than in the manner specified. There is no discertain left with the taxing authority under this sub-section to allow such expenditure. The rigour of the rule contianed in this sub-section to allow such expenditure. The rigour of the rule contained in this sub-section is, however, relaxed to some extent by the second proviso to the said sub-section which provides that no disallowance under the said sub-section shall be made where any such payment is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. As pointed out by hte Finance Minister in his speech in the Lok Sabha while introducing the Finance Bill of 1968, this proviso was introduced in order to obviate any difficulteis in payment by cheques or bank drafts in rurla areas and in certain other cases and circumstances. For that prupose, power was cocferred to enact rules ot prescribe cases and circumstnces in which no disallowance under sub-section (3) shall be made where any payment in a sum exceeding Rs. 2,500 is made otherwise than by a a crossed cheque drawn on a bank or by a crossed bank draft. Be it noted that while construing the provisions of the said proviso as well as the rules enacted thereunder, this object, which the legislature had in mind, will have to eb borne in mind and that any interpretation of those provisions will have to be guided by the consideration that the legislature was thereunder enacting a relaxation to the rigour of the rule contained in sub-section (3) in order to obviate harassment and hardship in genuine and bona fide cases. There was some debate before us on the question whether the concluding words of the second proviso to sub-section (3), namely, 'having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors' govern the first part of the said proviso and, accordingly, it is for the taxing authority to consider whether payment otherwise than by a crossed cheque or a crossed bank draft, exceedign Rs. 2, 500, should not be disallowed, having regard to the factors mentioned therein, or whether the concluding portion was enacted with a view to providing a guideline to the rule-making authority, who had to prescribe cases and circumstances, bearing in mind the said factors. It is unnecessary for us in the present case to resolve this controversy, because, in our opinion, whichever way one looks at the matter, it cannot be gainsaid that the legislature has indicated the factors which must weigh in not disallowing any expenditure in a sum exceeding Rs. 2, 500 when payment is made otherwise than by a crossed cheque or a crossed bank draft. Even if it is held that the relevatn expression is a mere guideline to the rule-framing authority, then also those guidelines will have to be borne in mind while interpreting the provisions of the relevant rules enacted by the competent authority, so that by a constricted or artificial construction of these rules, the very object of the legislature is not frustrated. It is pertient to note in this connection that the consideration of business expediency is brought in by the second proviso to sub-section (3) of section 40A and if any such payment is made otherwise than by a crossed cheque or a crossed bank draft on considerations of business expediency, the legislature thought that such payment should not be disalllowed.
45. Turning now to the relevant provisions of rule 6DD against the aforesaid background, it would appear that clause (j), which is the material provision, is in the nature of a residuary clause. It provides that if in a case covered by section 40A(3), the assessee satisfies the Income-tax Officer that the payment could not be made accordingly, (1) due to exceptional or unavoidable circumstances, or (2) because payment in the said manner was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes to the satisfaction of the Income-tax Officer evidence as to the genuineness of the payment and the identity of the payee, no disallowance under sub- section (3) of the section 40A shall be made. An analysis of clause (j) of rule 6DD would reveal that it sets out four circumstances in which the rigour of hte rule contained in sub-section (3) has to be relaxed, namely, where the assessee satisfies the Income-tax Officer that the payment could not be made by a crossed cheque or by a crossed bank draft due to, (1) exceptionla circumstances, (2) unavoidable circumstances, (3) because it was not practicable, having regard to the nature of the transaction and the necessity for expeditions settlement thereof, and (4) because it would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof. Be it noted that even if these four conditions are satisfied, the rigour of the rule contaiend in sub-section (3) is not automatically relaxed. The assessee is still required to furnish evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee. It is only in such class of cases that the rule provides for no disallowacne beign made if any of the four conditions above-mentioned is satisfied. The first two conditions prescriebd in the rule deal with the inability of the assessee to make payment by a crossed cheque or by a crossed bank draft due to exceptional or unavoidable circumstances. When clause (j) to rule 6DD was originally enacted these were the only conditions prescribed. However, having regard to the experience gained after the enactment of the section and rule, the other two ocnditions were introduced in the rule on November 18, 1970. Those two conditions have obviously been introduced to cover cases where on account of business expediency or other relevant factors, payment by a crossed cheque or by a crossed bank draft is not practicable or causes genuine difficulty to the payee. We are concerned in the presnt case with the third condition, namely, where payment in the manner provided in section 40A(3) is not practicable and the question which arises is as to what is the scope and ambit of the word 'practicabel' as used in rule 6DD(j)(2).
46. In Shorter Oxford English Dictionary, third edition, at page 1560, the following meaning is ascribed to the word 'practicable' : (1) capable of being carried out in action; feasible; (2) capable of being used or traversed, as a road, ford, etc. The first meaning is appropriate so far as present case is concerned and it would thus appear that the word 'practicable', in its etymological meaning, signifies that which is capable of being carried out in action or feasible.
47. In Corpus Juris Secundum,volume 72, at page 467, is has been pointed out that the word 'practicable' has a number of significations and that it is variously defined as meaning : (1) capable of being put into practice, done, or accomplished; capable of being done or accomplished with available means or resources; (2) capable of being performed or effected; (3) feasible; (4) feasible, fair, and convenient; (5) possible of execution or performance. It has been further pointed out that whether a thing is practicable depends on the acutalities, the very facts and circumstances of the case, and that an act is practicable if conditions and circumstances are such as to permit its performance or to render it feasible; but a thing is nto practicable if some element essential to its accomplishment is lacking.
48. The meaning assigned as aforesaid to the word 'practicable' in the ordinary parlance must prevail even in the context of rule 6DD(j), because there is nothing in the subject or context which detracts from it and justifies the giving of a constricted meaning to the said word. In fact, as earlier stated, if the object of the enactment, namely, to relax the rigour of sub- section (3) of section 40A in genuine and bona fide cases to avoid hardship and harassment, is borne in mind, the adoption of the ordinary meaning of the word which is so wide would be justified, because it would advance the cause rather than defeat it. Accordingly, the word 'practicable' in rule 6DD(j) (2) must be held to signify that which is feasible, that is to say, capable of being put into practice, done, or accomplished with the available means and resoruces. Besides, in determining practicability for the purposes of rule 6DD(j) (2), regard will have to be had to the facts and circumstances of each case, for, in the ultimate analysis, it is the actuality which must be the decisive factor. It is in this light that the taxing authority must approach a case which falls to be decided under rule 6DD(j) (2).
49. On more thing which requires to be borne in mind is that practicability for the purposes of rule 6DD(j) (2) must be judged from the point of view of the businessman and not of the revenue. As earlier pointed out, the provision of section 40A is made with a view to disallowing expenditure, which is otherwise deductible, incurred by a businessman or a professional person in specified circumstances. The second proviso has, however, been enacted to relax the rigour of the rule contained in the substantive provision and while enacting the said proviso, the legislature has indicated its mind by laying down certain guidelines for the relaxation of the rigour. Now, payment by a crossed cheque or crossed draft may, under certain circumstances, be difficult or even impossible and such a case has been taken care of by the rule-framing authority by providing in rule 6DD(j) (1) that if payment could not be made in tha manner due to exceptional or unavoidable circumstances, no disallowance should be made. However, for the purposes of carrying on his business, a businessman may have to make payment otherwise than by crossed cheque or draft in certain circumstacnes voluntarily and not out of sheer necessity. The legislature was conscious of this factor and it, therefore, gave this express guideline in the second proviso to section 40A(3) prescribing business expediency as one of the relevant factors. Taking clue from this statutory provision, the rule-framing authority inserted by a subsequenty amendment in rule 6DD(j) (2) the two other categories of cases, namely, where payment in the manner prescribed was not pracaticable or it would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof. If the relevant provision is read in the aforesiad light, it would be clear that practicability for the purposes of rule 6DD(j)(2) has to be adjudged from the angle of the businessman and not of the revenue.
50. We may mention that it was strenuously contended on behalf of the revenue that the word 'practicable' is governed by the expression 'having regard to the nature of the transaction and the necessity for expeditions settlement thereof' and that, therefoer, it is only from these two points of view that the practicability or otherwise of payment by a crossed cheque or a crossed bank draft has to be adjudged. We are unable to agree. It is not possible to hold, though the expression on which emphasis has been placed on behalf of the revenue does lend itself to such suggestion, that regard should be had only to the tow matters mentioned therein, isolated from other relevant factors. Such interpretation is not warranted by the statutory language which does not say 'having regard only' nor is it warranted by hte guideline contained in section 40A(3), second proviso. In Commissioner of Income-tax v. Gangadhar Banerjee & Co. (P.) Ltd., : 57ITR176(SC) , a similar contention advanced in the context of section 23A of the Indian Income-tax Act, 1966, before amendment in 1955, which also used a similar expression, namely, 'having regard to losses incurred by the company in earlier years or to the smallness of the profit made' was negatived by the Surpeme Court. The Supreme Court observed that though the object of the section was to prevent evasion of tax, the provision was required to be worked not from the standpoint of the tax collector but from that of a bsinessman and that it was not posible to accept the argument that the Income-tax Officer could not take into consideration any circumstnaces other than losses and smallness of profits. We are, therefore, not prepard to unduly restrict the scope of sub-clause (2) of claus (j) of rule 6DD by holding that in considering the practicability or otherwise of payment by a crossed cheque or a crossed bank draft, only the two circumstances enumerated therein can be taken into consideration. The correct interpretation, in our opinion, would be to give to the word 'practicable' a wide and liberal meaning as we have done above and to leave it to the Income-tax Officer to judge in each case whether or not from the standpoint of the business or professional man it was practicable to make payment by a crossed cheque or a crossed bank draft.
51. Against the background of the aforesaid statutory provisions, let us now turn to the facts of the present case. Be it noted at the outset that it is not in dispute in this case that the assessee has, in fact, made the payment of the disputed amounts to the co-operative societies in question against the purchases of sugar at auctions held from time to time. In other words, this is a case in which the last condition prescribed in clause (j) of rule 6DD is satisfied inasmuch as the assessee has furnished evidence to the satisfaction of the Income-tax Officer as to the genuineness of the payment and the identity of the payee. Be it noted also that though the Income-Tax Officer disallowed all the payments exceeding Rs. 2,500 made individually totalling up to Rs. 3,57,675, the Appellate Assistant Commissioner granted partial relief to the extent of Rs. 1,26,909 holding that payments totalling up to that amount were made in cash by the assessee in exceptional or unavoidable circumstances. The Tribunal granted a further relief when it allowed the payment made in cash by the assessee towards 10% deposit which it had to make immiediately after the auction, holding that payment in cash to that extent was unavoidable inasmuch as the assessee did not know in advance the exact amount which it would be required to pay as and by way of deposit and the payment was to be made on the spot and after the bank was closed. The dispute now survies, therefore, in respect of only the balance of the purchase price.
52. The assessee, as earlier pointed out, pleaded three circumstances to invoke the benefit of clause (j) of rule 6DD. The assessee contended that, under those circumstances, it was not practicable to make payments by crossed bank drafts. In this connection, it requires to be noted that under the terms of auction the co-operative societies in question accepted either cash or bank draft drawn only on the Girgadhad Road branch of the Junagdh District Co-operative Bank Ltd. The assessee, therefore, had no option to make the payment by crossed cheque or draft drawn on any other bank. The assessee produced evidence, which is no controverted, to show that at the factory of one of the co-operative societies in question, namely, Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd., there was no branch of any bank and that the factory was situate at a distance of 2 kilometers from the nearest town. The payments which are disallowed pertain mostly to the said co-operative society. The assessee also produced evidence to show that he had to cover a distance of about 183 kiloimeters from Bantwa to Una and a distance of about 146 kilometers from Bantwa to Kodinar and that it used to take him about 8 hours to reach Una and about 7 hours to reach Kodinar by a bus from Bantwa. In order to reach the place of auction in time he had to leave early in the morning from Bantwa when the banks would not be open and when he reached either Una or Kodinar, the banks would have closed. The question is whether under these circumstances it could be said thta it was not practicable for the assessee to make payment either by crossed cheque or crossed draft.
53. When we look at the order to the Tribunal, we find that it merely recited the four conditions enacted in clause (j) of rule 6DD and it has, without assigning any reasons, held that none of these conditions are satisfied, so far as the balance of the purchase price was concerned. The Tribunal dealt with only one specific plea raised by the assessee, namely, that he used to go to the price of auction with truck and immediately on conclusion of the auction he used to take delivery and transport the goods by truck and, under such circumstances, it was not practicable for him to make the payment by a bank draft and it found that if the assessee took the truck for his convenience and wanted to transport the goods on the same day, it could not be said that the expenditure was unavoidable. The other facts which the assesse pleaded and in respect of which he produced evidence before the authorities are, however, not held to be not proved by the Tribunal. Besides, the Tribunal did not apply the test which it had to apply nor did it consider the matter from the point of view of a businessman which it was required to do. In our opinion, if all the factors which the assessee has pleaded and which are established are borne in mind and if the matter is adjudged from the point of view of a businessman, no conclusion other than that it was not practicable to make payment by a crossed bank draft is possible in the facts and circumstances of the case. The assessee made purchases at the auction which was announced only one or two days in advance and its representative had to travel a long distance to reach the place of auction. It was not possible for him to obtain the bank draft drawn on a particular bank before he left or after he reached the place of aucitn because of the time factor and absence of the branch of any bank in the factory or near about. On some of the occasions, owing to pauciyt of bank balance and short notice, the assessee had to collect cash from its customers only on the previous day in order to make payment at the auction. If a businessman wants to carry the goods purchased by him at the auction with him and to rech his usual place of business as expeditiously as possible and if he could not do so unless he made payment in cash, having regard to the circumstances mentioned above, his conduct would be justified on the ground of business expediency. It would thus appear that in the present case with the available means and resoureces it was not practicable for the assessee to make payment of the balance of purchase price otherwise than in cash which would be known only after the auction was held and the highest bid was accepted. Once the Tribunal accepted the plea of the assessee with regard to 10% amount which had to be paid by way of deposit, it could not possibly have rejected the assessees contention with regard to the balacne of purchase price, for, in both the circumstances, the conditions governing the payment in cash were identical.
54. In our opinion, therefore, the Tribunal erred in law in not giving to the assessee, in the facts and circumstances of the present case, the benefit of rule 6DD(j) and in holding that the disallowance of payments to the two co-operative societies in question in addition to the 10% amount paid as and by way of deposit was proper.
55. As a result of the foregoing discussion, we answer the questions referred to us for our opinion as follows :
Question No. 1. - No answer is required to be given since the question is academic in the facts and circumstances of the case.
Question No. 2. - In the negative, i.e., in favour of the assessee and against the revenue.
Question No. 3. - In the negative, i.e., in favour of the assessee and against the revenue.
56. The Commissioner will pay the costs of this reference to the assessee.
57. assessee cases to behree following additions :
(i) Unaccounted for woollen yarn and stock pledgedwith the bank Rs. 2,45,600(ii) Unaccounted for bank deposits in theUnion Bank of India, Bombay Rs. 65,695(iii) Extra profit on woll-tops. Rs. 42,230
58. The addition of Rs. 65,695 was deleted by the Commissioner of Income- tax by an order under section 264 of the Act. The other addition of Rs. 42,230 was knocked out by the Tribunal's decision in the quantum appeal of the assessee in ITA No. 603 of 1973-74 decided on July 31, 1975. As regards the addition of RS. 2,45,600, it may be mentioned that the Income-tax Officer had prepared a chart in respect of yarn for the period of three months, i.e., from January to March, 1967, and worked out a shortage of 4,712 kg. of yarn, the cost of which calculated at Rs. 50 per kg. worked out to Rs. 2,35,600. To this amount, a sum of Rs. 10,000.