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Commissioner of Income-tax, Gujarat Iii Vs. Poonjabhai Vanmalidas - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference Nos. 129 and 168 of 1974
Judge
Reported in[1976]105ITR388(Guj)
ActsIncome Tax Act, 1922 - Sections 10(2); Income Tax Act, 1961 - Sections 4, 23(2), 28, 29, 30, 31, 32, 33, 34, 34(1), 35, 36, 36(1), 36(2), 37, 38, 39, 40, 41, 41(1), 41(2), 41(3), 41(4), 42, 43A, 99, 128, 128(4), 155(6), 156, 261, 297, 297(1) aznd 297(2); General Clauses Act, 1897 - Sections 24
AppellantCommissioner of Income-tax, Gujarat Iii
RespondentPoonjabhai Vanmalidas
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate J.P. Shah, Adv.
Cases ReferredBanarsi Debi v. Income
Excerpt:
(i) direct taxation - assessment - sections 10(2) 14, 22, 23, 24, 24 (1), 25, 26, 27, 28, 66, 81 (1) and 110 of income tax act, 1961 - whether tribunal right in holding that deduction of municipal taxes be allowed while computing income from self occupied property - in view of decision on similar matter while calculating annual letting value of property in occupation of owner for purpose of his residence municipal taxes required to be deducted - held, tribunal right in holding that municipal tax admissible deduction in computing income from self occupied property. (ii) taxable income - whether amount received from x not includible in taxable income of assessee under section 41 (4) - partial recovery of bad debts made from x covered by section 41 (4) - tribunal erred in holding amount.....divan, c.j. 1. the assessee in both these cases is the same. the assessment years under reference in income-tax reference no. 129 of 1974 are assessment years 1964-65 and 1965-66 and the assessment year under reference in income-tax reference no. 168 of 1974 is the assessment year 1967-68. since the principal question which arises for consideration in both the cases is the same, we will dispose of both these matters by this common judgment. in income-tax reference no. 129 of 1974, the question that has been referred to us is as follows : 'whether, on the facts and in the circumstances of the case, the tribunal was right in law in holding that the amounts of rs. 19,961 for the assessment year 1964-65 and rs. 1,091 for the assessment year 1965-66 in question were not includible in the.....
Judgment:

Divan, C.J.

1. The assessee in both these cases is the same. The assessment years under reference in Income-tax Reference No. 129 of 1974 are assessment years 1964-65 and 1965-66 and the assessment year under reference in Income-tax Reference No. 168 of 1974 is the assessment year 1967-68. Since the principal question which arises for consideration in both the cases is the same, we will dispose of both these matters by this common judgment. In Income-tax Reference No. 129 of 1974, the question that has been referred to us is as follows :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amounts of Rs. 19,961 for the assessment year 1964-65 and Rs. 1,091 for the assessment year 1965-66 in question were not includible in the taxable income of the assessee under section 41(4) of the Act for the respective years under reference ?'

2. In Income-tax Reference No. 168 of 1974 the following two question have been referred to us for our opinion :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the deduction of municipal taxes should be allowed while computing the income from self occupied property

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount of Rs. 16,634 received from Prabha Mills was not includible in the taxable income of the assessee under section 41(4) of the Act ?'

3. Both these questions in this reference have been referred to us at the instance of the revenue.

4. It is common ground that the point of law raised by question No. (1) in Income-tax Reference No. 168 of 1974 is covered by the decision of this High Court in Commissioner of Income-tax v. Arvind Narottam (Income-tax Reference No. 52 of 1975, decided on October 6, 1975). There it was held that while calculating the annual letting value of the property in question in the occupation of the owner for the purpose of his residence, municipal taxes have to be deducted. The Tribunal had taken the same view and, therefore, in the light of the decision of this court in Commissioner of Income-tax v. Arvind Narottam, question No. (1) in Income-tax Reference No. 168 of 1974 must be decided in the affirmative, that is, in favour of the assessee and against the revenue.

5. The question in Income-tax Reference No. 129 to 1974 and question No. (2) in Income-tax Reference No. 168 of 1974 arise under the following circumstances. The assessee is a Hindu undivided family. In the course of the previous year relevant to the assessment year 1964-65, the assessee recovered an amount of Rs. 19,961 from Messrs. Prabha Mills. Similarly, in the courses of the previous year relevant to assessment year 1965-66, another sum of Rs. 1,091 was received by the assessee from Messrs. Prabha Mills. It appears that in the course of assessment for assessment year 1959-60, the debt owed by Messrs. Prabha Mills to the assessee was written off as bad debt and was allowed as a deduction in that assessment year. When, therefore, in the assessment years 1964-65 and 1965-66, the sums of Rs. 19,961 and Rs. 1,091 respectively were shown as having been received from Messrs. Prabha Mills, the Income-tax Officer sought to bring back these amounts to tax under the provisions of section 41(4) of the Income-tax Act, 1961, as trading receipts in the hands of the assessee-family. The Income-tax Officer rejected the contention of the assessee that theses two amounts were not taxable as trading receipts under the provisions of section 41(4). In the previous year relevant to assessment year 1967-68 a further sum of Rs. 16,634 was received from Messrs. Prabha Mills and was sought to be brought to tax as a trading receipt under section 41(4) and the same contention regarding this item of Rs. 16,634 was also advanced as in the case of the other two items of Rs. 19,961 and Rs. 1,091. In the case of assessment proceedings for all these three relevant assessment years the Income-tax Officer rejected the contention of the assessee that the amount was not taxable under section 41(4), the assessee carried the matter in appeal but the Appellate Assistant Commissioner upheld the view of the Income-tax Officer. When the assessee took the matter in further appeal before the Appellate Tribunal, it was contended that the bad debt which was allowed as a deduction in assessment year 1959-60 was not covered by the provisions of section 41(4) of the Act. It was contended that the provisions of section 41(4) are applicable in respect of those debts only which are allowed under section 36(1)(vii) of the Act and not to the bad debts allowed under Section 10(2)(xi) of the Act of 1922. It was contended that the provisions of section 10(2)(xi) of the Act of 1922 and section 36(1)(vii) of the Act of 1961 were not in pari materia inasmuch as under the old Act there was no provision for taxing the amount received out of the bad debts if the business was discontinued before the year of recovery, whereas section 41(4) of the Act of 1961 specifically laid down that the debts recovered should be assessed as income of the previous year in which the recovery was made irrespective of the fact whether the business was in existence in that year or not. The Tribunal held that the fiction created by section 41(4) must operate within its limited sphere and cannot be extended beyond the language of the section by which it was created, or by importing another fiction. The Tribunal found that it was difficult to equate the provisions of section 36(1)(vii) of the Act of 1961 with those of section 10(2)(xi) of the Act of 1922 and, therefore, the fiction enacted under section 41(4) of the Act could not come to the aid of the revenue. In this view of the matter the Tribunal deleted the additions in respect of the amounts received from Messrs. Prabha Mills in the three assessment years under consideration before us and, thereafter, at the instance of the revenue, the question in Income-tax Reference No. 129 of 1974 and question No. (2) in Income-tax Reference No. 168 of 1974 came to be referred to us at the instance of the revenue.

6. In order to appreciate the arguments which have been advanced before us at the bar and in order to arrive at a correct conclusion it is necessary to refer to the relevant provisions of the Indian Income-tax Act, 1922, and of the Income-tax Act, 1961. Under section 10(2)(xi) of the Act of 1922 it was provided -

'(2) Such profits or gains (profits and gains of business, profession or vocation) shall be computed after making the following allowances, namely :-

(xi) When the assessee's accounts in respect of any part of his business, profession or vocation are not kept on the cash basis, such sum, in respect of bad and doubtful debts, due to the assessee in respect of that part of his business, profession or vocation, and in the case of an assessee carrying on a banking or money-lending business, such sum in respect of loans made in the ordinary course of such business as the Income-tax Officer may estimate to be irrecoverable but not exceeding the amount actually written off as irrecoverable in the books of the assessee : Provided that if the amount ultimately recovered on any such debts or loan is greater that the difference between the whole debts or loan and the amount so allowed, the excess shall be deemed to be a profit of the year in which it is recovered, and if less, the deficiency shall be deemed to be a business expense of that year.'

7. Clause (xi) of section 10(2) was inserted by the Indian Income-tax (Amendment) Act of 1939. Under section 29 of the Act of 1961 the income referred to in section 28, that is, income chargeable to tax under the head 'profits and gains of business or profession' has to be computed in accordance with the provisions contained in sections 30 to 43A. Section 36(1)(vii) provides :

'The deductions provided for in the following clauses shall be allowed, in respect of the matters dealt with therein, in computing the income referred to in section 28 - ..... (vii) subject to provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year.'

8. section 36(2) provides that in making any deduction for a bad debt or part thereof, the provisions of the different clauses of that section shall apply. The conditions are -

'(i) no such deduction shall be allowed unless such debt or part thereof -

(a) has been taken into account in computing the income of the assessee of that previous year, or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee, and

(b) has been written off as irrecoverable in the accounts of the assessee for that previous year.'

9. Secondly, if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made. Any such or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year, but the Income-tax Officer had not allowed it to be deducted on the ground that it has not been established to have become a bad debt in that year, and where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year and the Income-tax Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply, that is, the provisions regarding rectification can be invoked in cases covered by clause (iv) of section 36(2). Under section 41, sub-section (4), it has been provided :

'Where a deduction has been allowed in respect of a bad debt of part of debt under the provisions of clause (vii) of sub-section (I) of section 36, then, if the amount subsequently recovered on any such debt or part is greater than the difference between the debt or part of debt and the amount so allowed, the excess shall be deemed to be profits and gains of business or profession, and accordingly chargeable to income-tax as the income of the previous year in which it is recovered, whether the business or profession in respect of which the deduction has been allowed is in existence in that year or not.'

10. The Explanation is not material for the purpose of this judgment. Thus, it is clear that barring the words 'whether the business or profession in respect of which the deduction has been allowed is in existence in that year or not' occurring at the end of section 41(4), the wording of section 41(4) is almost in identical terms with the wording of the proviso to section 10(2) (xi) of the Act of 1922.

11. The main argument which has been advanced by Mr.Kaji on behalf of the revenue is that even though section 41(4) in terms refers to section 36(1)(vii) of the Act of 1961, the cases of all debts written off under the provisions of section 10(2) (xi) of the Act of 1922 are also covered by the provisions of section 41(4). In this connect in Mr.Kaji on behalf of the revenue raised the following alternative contentions. The provisions of section 297(2)(k) of the Act of 1961 apply in this case and, therefore, the order granting the allowance of bad debt treated as irrecoverable in the assessment year 1959-60 would be deemed to have been made or granted under the provisions of section 36(1)(vii) and hence the provisions of section 41(4) of the Act of 1961 would apply. In the alternative, he contended that the case is covered by the provisions of section 24 of the General Clauses Act, 1897, and the order must be deemed to have been made under section 36(1)(vii) of the Act which is the provision of law corresponding to section 10(2)(xi) and, therefore, since the Act of 1922 is repealed and re-enacted by the Act of 1961 the provision of section 24 would apply. His third contention which is also in the further alternative was that the words occurring in section 41(4) 'or under the corresponding provisions of the Act of 1922' should be read in section 41(4) immediately after the words 'of sub-section (1) of section 36' in section 41(4) in order to avoid results which could never have been contemplated by the legislature and in order to make the machinery workable. In the last alternative he contended that the word 'under' occurring in section 41(4) of the Act of 1961 immediately in the context of the words 'under the provisions of clause (vii) of sub-section (1) of section 36' should be read while interpreting the section as equivalent to 'as contemplated by' and, therefore, by a process of interpretation the words 'under the provisions of clause (vii) of sub-section (1) of section 36' and that would cover the provisions of section of section 10(2)(xi) of the Act of 1922.

12. It must be pointed out that though at one time a view apparently was taken by the Supreme Court that the provisions of section 297 were exhaustive, in subsequent cases this view was explained. In Kalawati Devi Harlalka v. Commissioner of Income-tax It was observed by Sikri J., as he then was, at page 690 :

'It seems to us that section 297 is mean to provide as far as possible for all contingencies which may arise out of the repeal of the 1922 Act. It deals with pending apples, revisions, etc. It deals with non-completed assessments pending at the commencement of the 1961 Act, hand assessments to be made after the commencement of the 1961 Act, as a result of returns of income filed after the commencement of the 1961 Act. Then in clauses (d) it deals with assessments in respect of escaped income; in clauses (f) and (g) it deals with levy of penalties; clause (h) continues the effect of elections or declarations made under the 1922 Act; clause (i) deals with refunds; clause (j) deals with recovery; clause (k) deals generally with all agreements, notifications, orders, issued under the 1922 act; clause (I) continues the nootifications issued under section 60(1) of the 1922 Act, and clause (m) guards against the application of a longer period of limitation prescribed under the 1961 Act to certain applications, appeals, etc. It is hardly believable in this context that Parliament did not think of appeals and revisions in respect of assessment orders already made or which it had authorised to be made under clause (a) of section 297(2).'

13. The Supreme Court observed that section 6 of the General Clauses Act would not apply because section 297(2) evidences an intention to the contrary.

14. This view regarding the exhaustive nature of the provisions of section 297 was considered by the Supreme Court in S. Sankappa v. Income-tax Officer. At page 764 of the report the passage cited above from the decision of Kalawati Devi Harlalka's case was cited and Bhargava J., delivering the judgment of the Supreme Court, observed immediately after setting out the passage :

'It is clear that, when proceedings are taken for rectification of assessment to tax either under section 35(1) or section 35(5) of the Act of 1922, those proceedings must be held so be proceedings for assessment. In proceeding under those provisions, what the Income-tax Officer does is to correct errors in, or rectify orders of assessment made by him, and orders making such corrections or rectifications are, therefore, clearly part of the proceedings for assessment.'

15. In Income-tax Officer (Third) v. M. Damodar Bhat the Supreme Court held in connection with the applicability of section 6 of the General Clauses Act to a case covered by section 297(2)(j) as follows :

'In other words, the procedure of the new Act will apply to the cases contemplated by section 297(2)(j) of the new Act mutatis mutandis. In this connection it is relevant to refer to the decision of this court in Kalawati Devi Harlalka v. Commissioner of Income-tax in which it was pointed out that section 6 of the General Clauses Act will not apply in respect of those matters where Parliament had clearly expressed its intention to the contrary by making detailed provisions for similar matters mentioned in that section. For these reasons we are of the opinion that the Income-tax Officer had authority to issue the notice under section 156 and section 226(3) of the new Act with respect to the liability of the respondent under the old Act.'

16. In T. S. Baliah v. T. S. Rangachari, Income-tax Officer the ratio of the decision in Kalawati Devi Harlalka's case as explained in Income-tax Officer (Third) v. M. Damodar Bhat was explained as follows :

'Section 6 of the General Clauses Act will not apply in respect of those matters where Parliament had clearly expressed its intention to the contrary by making detailed provisions for similar matters mentioned in that section'

and the Supreme Court in T. S. Baliah's case found that Parliament has not made any detailed provision for the institution of prosecutions in respect of proceedings which were pending at the commencement of the 1961 Act and it, therefore, followed that the provisions of section 6 of the General Clauses Act were applicable to the case and the prosecution of the appellant under section 52 of the 1922 Act was legally valid even after the repeal of the Act of 1922. Thus, in view of these four decisions of the Supreme Court in Kalawati Devi Harlalka, S. Sankappa, M. Damodar Bhat T. S. Baliah it is clear that in respect of those matters on which the provisions of section 297 are silent or are not applicable, the provisions of the General Clauses Act will apply.

17. As regards the first contention of Mr.Kaji that section 297(2)(k) applies to the provisions of section 41(4), there is one difficulty in his way. Section 297 provides in sub-section (1) that the Indian Income-tax Act, 1922, is thereby repealed. Under sub-section (2) it has been provided :

'(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922....... (k) any agreement entered into, appointment made, approval given, recognition granted, direction, instruction, notification, order or rule issued under any provision of the repealed Act shall, so far as it is not inconsistent with the corresponding provision of this Act, be deemed to have been entered into, made granted, given or issued under the corresponding provision aforesaid and shall continue in force accordingly.'

18. Now, what is 'deemed to have been issued under the corresponding provision' of the 1961 Act is any agreement entered into, appointment made, approval given, recognition granted, direction, instruction. Notification, order or rule issued under any provision of the repealed Act. The verb in the pasts perfect participle 'made' in section 297 occurs only in the context of appointment and not in the context of any order made. So far as an order referred to in section 297(2)(k) is concerned, it is only an order issued under the provisions of the repealed Act. Now, it is well-settled law that whenever there is any assessment proceeding, every stage of the assessment proceeding and orders with the being passed by the Income-tax Officer in connection with different aspects of the assessment, for example, when the Income-tax Officer allows or disallows a particular expenditure, he makes a decision allowing or disallowing, as the case may be, and that decision is equivalent to an order.

19. In Karsandas Bhagwandas Patel v. G. V. Shah, Income-tax Officer, a Division Bench of this court has observed at page 264 in the context of the power of the Appellate Tribunal :

'Every decision recorded by the Income-tax Officer in making assessment, though not forming the subject-matter of consideration and decision by the Appellate Assistant Commissioner, would, by reason of merger, be deemed to become a part of the order of the Appellate Assistant Commissioner and if the assessee is unhappy about it, he would be entitled to object to it by preferring an appeal to the Tribunal, even though he has not challenged it in the appeal to the Appellate Assistant Commissioner.'

20. Thus, the different decisions which the Income-tax Officer has to reach before arriving at the final order of assessment are each equivalent to a separate order which can become the subject-matter of appeal to the higher authorities. It is in this context of the order of assessment which relates to an item in forming part of the subject-matter of the appellate order being left untouched and not merging in the appellate order (sic). Thus, so far as the 'order' which is contemplated by section 297(2)(k) is concerned, what we have to consider is an order of assessment, and a decision made by an Income-tax Officer on one or another aspect of the assessment proceeding before arriving at the order of assessment, Cannot be said to be an 'order issued' by him. It can only be referred to as an order made by him. Under these circumstances since the word 'order' is followed by 'issued' under section 297(2)(k) and since none of the other words used in section 297(2)(k) is applicable to a decision regarding writing off of bad debts, in our opinion, section 297(2)(k) cannot be invoked. It may be pointed out that even a direction or instruction which may possibly be stretched to cover a situation of the type before us, namely, writing off of a bad debt, is governed by the word 'issued' and not governed by the word 'made'; it can hardly be said that when the Income-tax Officer decides to write off a particular bad debt as irrecoverable and hence as a bad debt, he 'issued' any direction or instruction. Therefore, looking to the phraseology of section 297(2)(k) it is clear that section 297(2)(k) has no application to a case like the one before us.

21. EFB The question then arises whether it is section 6 of the General Clauses Act, 1897, that will apply or section 24 of the General Clauses Act which will apply. Section 6 of the General Clauses Act provides for effect of repeal and lays down that where the General Clauses Act or any Central Act or Regulation made after the commencements of the General Clauses Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not affect the previous operation of any enactment so repealed or anything duly done or suffered thereunder; or incurred under any enactment so repealed; nor affect any investigation; legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture of punishment may be imposed as if the repealing Act or Regulation had not been passed. If Mr. J. P. Shah's contention regarding the applicability of section 6 is to prevail, then it would mean that in respect of a bad debt which was written off, the provisions of section 10(2)(xi) of the Act of 1922 still continue to apply and not the provisions of the 1961 Act. It is common ground that the business of the assessee, Hindu undivided family, had ceased to exist prior to the commencement of the assessment orders under consideration before us. If that business had ceased to exist, then in the light of the decisions of the Supreme Court in Commissioner of Income-tax v. Express Newspapers Ltd., and Nalinikant Ambalal Mody v. S. A. L. Narayan Row, Commissioner of Income-tax and cases referred to therein, it is obvious that the provisions of section 10(2)(xi) would not apply to theses recoveries because it was laid down by the Supreme Court in these two cases that before section 10(2) can be invoked or any of the provisions of section 10(1) can apply, the business must be carried on in the assessment year under consideration at the time when the recovery is made or when the particular item which is sought to be included as profits and gains of business was received or the right to receive that profit of gains accrued to the assessee when the system of mercantile account keeping is being maintained. Under these circumstances if Mr. Shah for the assessee is right in his contention and section 6 of the General Clauses Act applies, then even though these three amounts were received from Prabha Mills in respect of bad debts which were written off as irrecoverable as bad debts in the assessment year 1959-60, those receipts cannot be brought to tax because under section 10(2)(xi) of the Act of 1922 as interpreted by the Supreme Court in Express Newspapers Ltd.'s case and Nalinikant Ambalal Mody's case, the business must be in existence at the time when these amounts were received or when the fight to received theses amounts accrued, as the case may be. We must, therefore, examine the provisions of section 6 of the General Clauses Act to ascertain whether section 10(2)(xi) of the 1922 Act applies to this case.

22. Before going into the scheme and the wording of section 6 of the General Clauses Act, we must understand the true principle of account keeping regarding provision for bad debts. In Spicer & Pegler's Book-keeping and Accounts, sixteenth edition, at page 39, it is stated :

'When a debt is found to be irrecoverable, it should be written off as a loss by means of a journal entry debiting Bad Debts Account and crediting the account of the defaulting debtor. At the end of the accounting period the Bad Debts Account is closed by transfer to the Profit and Loss Account. Should a debt which has been written off as bed be subsequently recovered, in whole or in part, the debtor's personal account should be debited and Bad Debts Account credited, the cash received these being credited to the debtor's account. This is preferable to posting the amount recovered direct from the Cash Book to the credit of the Bad Debts Account without making any entry in the debtor's personal account, since it is desirable, for future reference, that this account should contain a full history of the occurrence.'

23. Really speaking, the provision for writing off bad debts and showing the recovery of debts which were written off on an earlier occasion as bad debts as receipt for the year in which the amount is received is a necessary concomitant of the system of commercial account keeping. As is well-known, when accounts are kept on mercantile basis, the entries are made on the basis of accrual of the right to receive a particular amount or incurring of a liability to pay a particular sum. It is not the actual date of receipt of the money or the actual payment which are material dates. If a right accrues to a person keeping accounts on mercantile basis to receives a particular amount, the entry has to be made as of the date when the right accrues. Subsequently, when the particular debts becomes irrecoverable the person concerned would write its off as bad debt. Since the accounts are maintained on accrual basis in the year in which the right accrued, the amount will be shown as receipt and in the year in which the amount is written off as bad debts because it is irrecoverable, it will be shown as a debit entry-as a deduction. Therefore, it necessarily follows that in a subsequent year or later on after it was written off as bad and irrecoverable debt if it yields some money in the shape of some recovery, then whatever is recovered either in whole or in part of the bad debt is again rated as the trading receipt of the year in which the amount is actually received. It was originally a trading receipt when the first credit entry was made on the accrual basis and it has got to be treated as a trading receipt in the year in which the amount of debt which was written off as bad and irrecoverable is received. This follows from the mercantile system of account keeping.

24. In the light of this result of the system of account keeping let us examine the provisions of section 6, writing off of bad debts is not as a result of the previous operation of the enactment of 1922 nor can it be said to be the previous operation of the 1922 Act or anything duly done or suffered thereunder. It is, therefore, clear that clause (b) of section 6 of the General Clauses Act does apply to a decision to write off bad debts. When a debt is written off as bad and irrecoverable, there is no liability incurred by the assessee concerned who could do nothing in connection with that bad debt. Therefore, it cannot be said that when the receipt of the amount in whole or in part of a debt which was written off as bad and irrecoverable is treated as a receipt, it is in recognition of a liability incurred under the enactment of 1922. When by virtue of the main body of the provision of section 10(2)(xi) the amount was written off in the assessment year 1959-60, the assessee did not incur any liability nor did he incur any obligation in connection with the amount thus written off. Therefore, clause (c) of section 6 which speaks of repeal not affecting any right, privilege, obligation or liability acquired, accrued or incurred under any enactment so repealed, could not be invoked. Again when the amount is actually received in the relevant assessment year under reference, there is no question of any investigation, legal proceeding or remedy in respect of any right, privilege, obligation, liability, penalty, forfeiture or punishment mentioned in the rest of the provisions of section 6 and, therefore, there is no question of any investigation or legal proceeding or remedy being instituted, continued or enforced by virtue of the provisions of section 6. It is, therefore, clear that by the very phraseology of section 6 there is no scopes for applying section 6 of the General Clauses Act to the case before us. Though as a matter of general principle of account keeping when the amount, whether in whole or in part, received in respect of a bad debt written off in the past is to be treated as a trading receipt, it is in the event of anything being received as against the bad debt written off in the past that the question would at all arise and until that eventuality occurs, there is no right or obligation or liability in respect of any debt so written off. Under these circumstances there is no question of continuing and legal proceeding or any investigation being continued or any remedy being continued or enforced as if the Act of 1922 had not been passed and the repealing provision of section 297(1) of the Act of 1962 had not been passed.

25. The question then arises whether section 24 of the General Clauses Act, 1897, can be invoked in this case as is sought to be done on behalf of the revenue by Mr. Kaji. That section provides for continuation of orders, etc., issued under enactments repealed and re-enacted. Section 24 provides that where any Central Act or Regulation is after the commencement of the General Clauses Act repealed and re-enacted with or without modification, then, unless it is otherwise expressly provided, any appointment, notification, order, scheme, rule, form or bye-law, made or issued under the repealed Act or Regulation, shall, so far as it is not inconsistent with the provisions re-enacted, continue in force, and be deemed to have been made or issued under the provisions so re-enacted unless and until it is superseded by any appointment, notification order, scheme, rule, form or bye-law, made or issued under the provisions so re-enacted. The rest of the provisions of section 24 are not material for the purposes of this judgment. It musts be borne in mind that originally when the General Clauses Act was enacted in 1897, it spoke only of order, scheme, rule, form or bye-law issued under the repealed Act or Regulation. There was no mention in section 24, as originally enacted by the legislature in 1897, to appointment or notification and the word 'made' was not used in connection with order, scheme, rule, form or bye-law.

26. Mr. J. P. Shah contended that the objects and reasons for enacting section 24 of the General Clauses Act is was stated :

'The enactment of this clause will obviate the necessity for including in every repealing and re-enacting Bill, such for instance, as the Bill which became the Pilgrim Ships Act (14 of 1895), a transitory provision to keep any orders, warrants, schemes, rules or bye-laws issued under the law which it is proposed to supersede, in force and replaced by fresh instruments duly promulgated under the new law. It will be observed..... that a similar provision has been enacted legally in section 18 of the madras General Clauses Act 1891.'

27. It must be borne in mind that this statement of objects and reasons was in connection with the enactment of section 24 of the General Clauses Act as it was originally enacted in 1897. At that time the words, 'appointment, notification' were not set out in the General Clauses Act in section 24 and the word 'made' was not used in connection with orders, schemes, rules, form or bye-laws. Therefore, the statement of objects and reasons for enacting section 24 of the General Clauses Act cannot help us in deciding what is meant by an order made under a repealed Act as used in section 24 of the General Clauses Act. Mr. J. P. Shah contended that section 24 of the General Clauses Act only applies to statutory orders, etc., which are made as delegated legislation and he contended that the collocation of the words in which the word 'order' occurs in section 24 indicates that the word 'order' merely refers to statutory orders in the shape of notifications, etc., or orders made by a Government in exercise of the powers conferred by statute and not any ordinary orders made in exercise of the functions of a particular Government Officer. He also contended that section 24 applies to orders like those statutory orders which are necessary for the operation of the new Act and refers to orders, etc., which would otherwise die with the repeal of the old Act and which are necessary to be continued for the functioning of the machinery of the particular enactment which has been repealed and which has been subsequently re-enacted after the repeal. He contended in this connection that an order of assessment does not die or expire with the repeal of the Act of 1922 and, therefore, it is not the type of order which is contemplated by or which is referred to in section 24 of the General Clauses Act. He contended that the very concept that the order of assessment for the assessment year 1954-55 (sic) is deemed to be made under the provision re-enacted is incongruous to the scheme of the 1961 Act and it could not have been issued under the 1961 Act particularly in the light of the provisions of section 297(2)(k) of the 1961 Act and he, lastly, contended in this connection that section 24 applies to orders which could be superseded by the new Act but there is no question of self-supervision of the old orders of assessment, and, therefore, the word 'order' referred to in section 24 of the General Clauses Act does not apply to an order equivalent to a decision of the Income-tax Officer allowing the writing off of a bad debt as a deduction for the earlier assessment years.

28. In this connection it may be mentioned that Black's Law Dictionary, fourth edition, states that an order is a mandate, precept; a command or direction authoritatively given; a rule or regulation and thus any decision or a mandate was an order given; a direction authoritatively given would amount to an order in the language of the law. There is, therefore, nothing inherently wrong in so far as the dictionary meaning of 'order' is concerned in construing the decision of the Income-tax Officer allowing a deduction in respect of a bad debt written off as an 'order' of the Income-tax Officer and, therefore, an order contemplated under section 24 of the General Clauses Act.

29. It is obvious form what we have said above that the provisions of section 10(2)(xi) of the Act of 1922 have been repealed and re-enacted in section 36(1)(vii) of the Act of 1961 and proviso to section 10(2)(xi) of the Act of 1922 is, after its repeal, re-enacted as section 41(4) and the modification which has been made is that whereas prior to the repeal of the 1922 Act the proviso to section 10(2)(xi) of the Act of 1922 applied only when the amount of a bad debt written off in an earlier year was received later on when the business was still running, so far as section 41(4) is concerned, it applies whether the business in respect of which the bad debt was written off in the previous year has ceased to exist or not. There is this much modification between the provisions of section 41(4) of the 1961 Act read with section 36(1)(vii) and section 36(2) as compared with section 10(2)(xi) of the Act of 1922 read with the proviso thereto, section 24 of the General Clauses Act contemplates that so far as there is substantial re-enactment after the repeal even though there may be some modification in the previous provisions, still an order made under the repealed Act or regulation shall, so far as it is not inconsistent, continue in force and be deemed to have been made under the provisions so re-enacted. We fail to see how it can be said that there is any inconsistency between the provisions of section 10(2)(xi) and the proviso thereto of the 1922 Act on the one hand and the provisions of section 36(1)(vii) read with section 36(2) and section 41(4) of the Act of 1961 on the other. The modification of the type which we find by the sentence used at the end of section 41(4) of the Act of 1961 providing that the fiction in section 41 (4) is to apply whether the business is in existence or not, does not amount to any inconsistency between two provisions. There is modification, no doubt, but not inconsistency and, therefore, section 24 would come into play.

30. In Chief Inspector of Mines v. Karam Chand Thapar SC 838), the Supreme Court has pointed out the scope of section 24 of the General Clauses Act. At page 843 Das Gupta J., delivering the judgment of the Supreme Court, has observed in paragraph 13 :

'One may pause here to remember that regulations framed under an Act are of the very greatest importance. Such regulations are framed for the successful operation of the Act. Without proper regulations, a statute will often be worse than useless. When an Act is repealed, but re-enacted, it is almost inevitable that there will be some time lag between the re-enacted statute coming into force, and regulations being framed under the re-enacted statute. However efficient the rule-making authority may be, it is impossible to avoid some hiatus between the coming into force of the re-enacted statute and the simultaneous repeal of the old Act and the making of regulations. Often, the time lag would be considerable. It is conceivable that any legislature, in providing that regulations made under its statute will have effect as if enacted in the Act, could have intended by those words to say that if ever the Act is repealed and re-enacted (as is more that likely to happen sooner or later), the regulations will have no existence for the purpose of the re-enacted statute, and thus the re-enacted statute, for some time at least, will be in many respects, a dead letter. The answer must be in the negative. Whatever the purpose be which induced the draftsman to adopt this legislative form as regards the rules and regulations that they will have effect 'as if enacted in the Act', it will be strange indeed if the result of the language used, be that by becoming part of the Act, they would stand repealed, when the Act is repealed. One can be certain that that could not have been the intention of the legislature.'

31. It must be pointed out that in that particular case the Supreme Court was not dealing with the question of an order made under a repealed Act and what is meant by the word 'order'; all that it was dealing with was the effect of repeal of statutory rules and regulations made or issued under a repealed Act. Therefore, this decision of the Supreme Court is of not much assistance to us in coming to the conclusion as to whether an order made under the Act of 1922 regarding the writing off of a bad debt can be said to have been made under the corresponding provisions of the Act of 1961.

32. It may be pointed out that in Brihan Maharashtra Sugar Syndicate Ltd. v. Janardan Ramchandra Kulkarni 468 (SC), the effect of section 24 of the General Clauses Act, 1897, on a notification issued under a repealed Act came up for consideration. The question was whether a notification issued under the relevant section of the Companies Act, 1913, giving power to the District Judge, Poona, to hear applications under section 153C of the Act of 1913 can be said to have continued under the Companies Act of 1956 and the Supreme Court observed at page 472 :

'Section 24 does not however purport to put an end to any notification. It is not intended to terminate any notification; all it does is to continue a notification in force in the stated circumstances after the Act, under which it was issued, is repealed. Section 24, therefore, does not cancel the notification empowering the District Judge of Poona to exercise jurisdiction under the Act of 1913...... the District Judge of Poona continues to have jurisdiction to entertain it. If it were not so, then section 6 would become infructuous'

and the proceedings originally instituted were deemed to have been validly continued under the Companies Act of 1956.

33. In Neel v. State of West Bengal : [1973]1SCR675 , the question was whether a notification issued under section 15 of the Arms Act which was repealed by the Arms Act of 1959 could be said to have been continued as a general effect of section 24 of the General Clauses Act. Shelat J., delivering the judgment of the Supreme Court, observed :

'It, however, appears, that no such notification as contemplated by section 4 of the 1959 Act has been issued. But in 1923 such a notification bearing reference No. Political (Police) Department Notification No. 787 PL, dated March 9, 1923, was issued under section 15 of the earlier Indian Arms Act, XI of 1878, which was in terms similar to section 4 of the present Act. The question is whether Act XI of 1878 having been repealed, the said notification issued under section 15 thereof can still be said to be operative Section 46(1) of the Arms Act, 1959, repealed the preceding Act of 1878. Its sub-section (2) provides that notwithstanding such repeal and without prejudice to sections 6 and 24 of the General Clauses Act, X of 1897, a licence granted under the repealed Act and in force immediately before the commencement of the new Act shall continue, unless sooner revoked, for the unexpired period for which it has been granted or renewed.' It was held by the Supreme Court that the combined effect of sections 6 and 24 of the General Clauses Act was that the said notification of 1923 issued under section 15 of the Act of 1878 not only continued to operate but must be deemed to have been enacted under the new Act. The Supreme Court held that the notification issued under the Act of 1878 must be deemed to have been made under the corresponding provisions of section 4 of the Arms Act, 1959 and, therefore, by virtue of section 24, the notification of 1923 was in force at the time of the commission of the offence, namely, possession of a sword in violation of the notification or 1923.

34. None of the decisions of the Supreme Court to which our attention has been drawn and to which we have referred above deals with the question or an order but we fail to see why a notification issued to deal with a specific situation under the provisions of a repealed statute can continue to be in force by virtue of the operation of section 24 of the General Clauses Act and an order made under the provisions of the Indian Income-tax Act, 1922, allowing a deduction in respect of a bad debt written off, cannot be deemed to have been made under the provisions of section 36(1)(vii) of the Act of 1961. In our opinion, it would be restricting the use of the word 'order' which is not warranted by the language of section 36. If we were to interpret the word 'order' merely as a statutory order made by the delegated legislation or administrative orders only. The entire argument of Mr. J. P. Shah for the assessee overlooks an important point, namely, that whatever may have been the original position when section 24 was enacted only with the word 'issued' occurring in connection with orders, scheme, rule, form or bye-law, after the insertion of the word 'made' by Act I of 1903, the whole concept was enlarged and any order made under a repealed Act can be deemed to have been made under the provisions of the re-enacted statute unless and until it is super seceded by any order made under the provisions so re-enacted. It is true that there is no scope for making a fresh order in respect of a bad debt which is originally written off in 1959-60, in the light of the facts of this cases, but it cannot be said that the order which is spoken of in section 24 must be an order which is capable of being made under the provisions re-enacted. The condition precedent to the invoking of section 24 is that there musts be a statute which is repealed and re-enacted with or without modification and there must have been an order made under the repealed statute. If these two conditions are satisfied, then the order which has been made under the repealed Act continues in force and musts be deemed to have been made under the repealed Act continues in force and must be deemed to have been made under the provisions so re-enacted. We find in the instant cases that the provisions of writing off of a bad debt which were contained in the Act of 1922 and have been repealed by section 297(1) of the Act of 1961 and have been re-enacted in the Act of 1961. (Vide section 36(1)(vii), 36(2) and 41(4) of the Act of 1961). Therefore, all the conditions which are required to invoke the provisions of section 24 are satisfied in this case and the order about writing off of bad debts passed under section 10(2)(xi) of the Act of 1922 must be deemed to have been made under the corresponding provisions of section 36(1)(vii) and section 36(2) of the Act of 1961, because these are the provisions which re-enact the relevant provisions of the repealed Act so far as writing off of bad debts is concerned.

35. Going to the further alternative argument of Mr. Kaji, his contention in the alternative to section 24 is that the words 'or under the corresponding provisions of the Act of 1922' should be read into section 41(4) in order to avoid the result which had never been contemplated by the legislature. Mr. Kaji is right when he says that it could never been in the contemplation of the legislature that the bad debts which were written off in the past and treated as losses or deductions in the past, that is, prior to the repeal of the Act of 1922, should be completely wiped out. So far as the recovery of those bad debts is concerned and the amount recovered is in respect of those bad debts so written off in the past, such recovered amounts should be treated as trading receipts. Not to do so would be contrary to all principles of accountancy. To attribute such an intention to the legislature would be contrary to the basic scheme of the provisions regarding such writing off of bad debts. But the main question is, whether it is permissible to us to read the provisions of section 41(4) in this liberal manner and to read these words 'under the corresponding provisions of the Act of 1923' in section 41(4) immediately after the reference to clause (vii) of sub-section (1) of section 36.

36. In support of this contention Mr. Kaji has relied upon the decision of the Supreme Court in Gursahai Saigal v. Commissioner of Income-tax and the observations of Chandrachud J. in Murarilal Mahabir Prasad v. B. R. Vad. The principle laid down in these two cases is that the rule of construction regarding strict interpretation of a taxing statute does not apply to all the provisions of a taxing statute. This rule of strict construction applies only to the charging or the taxing sections and not to the machinery provisions or provisions for procedure for the collection of tax. The Supreme Court had laid down in these two cases that the provisions in the statute dealing with the machinery for assessment have to be construed by the ordinary rules of construction, that is to say, in accordance with the clear intention of the legislature which is to make the charge levied effective.

37. Mr. Kaji in this connection referred to the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth-tax and particularly the passage at page 790 for the purpose of pointing out that under the Act of 1922, section 3, and under the Act of 1961, section 4, is the charging section and the rest of the provisions of the Act of 1922 and the rest of the provisions of the Act of 1961 are merely provisions for machinery of collection and procedure for collection and machinery for assessment but they are not the charging sections. Mr. Kaji in this connection submitted that the decisions of the Supreme Court in Commissioner of Income-tax v. Express newspapers Ltd., and Nalinikant Ambalal Mody v. S. A. L. Narayan Row, Commissioner of Income-tax, did not lay down that any provision other than section 3 of the Act of 1922 was the charging section. All that these two authorities lay down is that the charging section 3 operates and has to be applied in accordance with the subject to the provisions of the Act of 1922. If while computing the tax it is found that the tax cannot be computed in accordance with the provisions of the Act, the charge may become ineffective on the facts of a particular case by that does not mean that the charge is under any provisions of the Act of 1922 other than section 3. The same terminology which was used in section 3 of the Act of 1922 has been used in section 4 of the Act of 1961 and, therefore, it is obvious that, so far as the charging section is concerned, in both the cases it is only section 4 of the 1961 Act and section 3 of the 1922 Act. The other provisions are machinery sections or prescribe procedure for collection of the tax.

38. In Commissioner of Income-tax v. Express Newspapers Ltd., Subba Rao J., as he then was, delivering the judgment of the Supreme Court, has pointed out at page 254 :

'Under section 3 of the Act (Indian Income-tax Act, 1922), income-tax shall be charged for any year in accordance with and subject to the provisions of the Act in respect of the total income of the previous year of every assessee; under section 6, one of the heads of taxable income is 'profits and gains of business, profession or vocation'; under section 10(1), the tax under that head is payable in respect of profits or gains of any business carried on by the assessee during the accounting year. The main condition which attracts all the other sub-sections and clauses of the section is that the tax shall be payable by an assessee in respect of the profits or gains of business, etc., carried on by him. The crucial words are 'business carried on by him'. If the profits or gains were not earned when the business was being carried on by the assessee during the accounting year, they would fall outside the provision of section 10(1).'

39. It is, therefore, clear that it was only because the computation was found not to be done in accordance with and subject to the provisions of section 10(1) that it was held that the charge created by section 3 would not apply but it did not mean that by using the word 'in accordance with and subject to the provisions of the Act' any other provisions of the Act was being set up or was being treated as a taxing provision.

40. The same principle was applied by the Supreme Court in Nalinikant Ambalal Mody's case. Sarkar C.J. has pointed out at page 431 in that case :

'The receipts in the present case are the outstanding dues of professional work done. They were clearly the fruits of the assessee's professional activity. They were the profits and gains of a profession. They would fall under the fourth head, viz., 'profits and gains of business, profession or vocation'. They were not however chargeable to tax under that head because under the corresponding computing section, that is, section 10, an income received by an assessee, who kept his accounts on the cash basis, in an accounting year in which the profession had not been carried on at all is not chargeable and the income in the present case was so received. This is reasonably clear and not in dispute : see Commissioner of Income-tax v. Express Newspapers Ltd. : [1964]53ITR250(SC) .'

41. Thus, because the computation in accordance with the provisions of section 10 could not be carried on when the business or profession had ceased to exist or was not being carried on, the particular item of income or receipt could not be brought to tax. The charge proved infructuous in those two cases because the tax could not be computed in accordance with the provisions of the section. Section 3 of the Act of 1922 clearly contemplated that only the total income of the previous year shall be charged in accordance with and subject to the provisions of the Act of 1922 and when it was found that it was not possible to compute the tax in accordance with and subject to the provisions of the Act, it was held that in income under consideration could not be brought to tax in Nalinikant Ambalal Mody's case and in Express Newspapers Ltd.

42. Mr. J. P. Shah for the assessee contended in the light of theses two decisions of the Supreme Court that these two decisions laid down that sections other than section 3 of the Act of 1922 and, therefore, sections other than section 4 of the Act of 1961 were also charging sections. We are unable to read any such indication in either two decisions of the Supreme Court.

43. Mr. J. P. Shah for the assessee is right to this extent that whereas under the Act of 1922 income from a profession or business which was being carried on in the relevant previous year at the time when the income accrued or when the right to receive that income accrued could not be brought to tax, by virtue of the provisions contained in the different sub-sections of section 41 in respect of certain items of income covered by these sub-sections such income can be brought to tax. The words 'whether the business or profession...... is in existence' or not in the year of receipt of accrual of the income contemplated by the different sub-section 41 occur in each of these sub-sections either by the deeming fiction created by the Explanation to sub-sections (2) and (3) of section 41 or by making provision in the main body of the sub-sections (10) and (4). The concept that the different items of receipts mentioned in sub-sections (1), (2), (3) and (4) of section 41 can be brought to tax irrespective of the question whether the business had ceased to exist or not has been clearly indicated and provision has been made to bring all such items to tax irrespective of the question whether the business or profession has ceased to exist or not. To that extent there is a departure from the Act of 1922. Mr. Shah is, therefore, right when he contends that whereas under the Act of 1922 the item of bad debt write off in the past when recovered after the business had ceased to exist could not be brought to tax, it can now be brought to tax under section 41(4) of the Act of 1961. Mr. Shah contended that hence at least part of section 41(4) is a charging section. He contends that in the light of the facts of this case, namely, that the assessee, Hindu undivided family, had ceased to carry on the business in respect of which the bad debt was written off in assessment year 1959-60, but for the provisions of section 41(4), particularly the last sentence of section 41(4), the recovery from Prabha Mills in the instant case in the three assessment years under consideration could not have been brought to tax. He, therefore, contends that at least this part of section 41(4) is a charging section. In view of the conclusion that we have reached regarding section 24 of the General Clauses Act and the deeming fiction created by section 24, namely, with reference to 'orders' made, under section 10(2)(xi) of the Act of 1922, writing off the bad debts in assessment year 1959-60 must be deemed to have been made under the provisions of section 36 (1)(vii) of the Act of 1961, it is not necessary for us to go into the question whether section 41(4) or any part thereof is a charging section. For the purposes of this judgment we are prepared to proceed upon the footing that it is a charging section. However, by virtue of section 24 of the General Clauses Act, the order passed under section 10(2)(xi) of the Act of 1922 allowing the bad debt written off as deduction in assessment year 1959-60 must be deemed to have been made under the provisions of section 36(1)(vii) and hence it would clearly fall within the four corners of section 41(4) of the Act of 1961.

44. If we had come to the conclusion that no part of the provisions of section 41(4) is a charging section, then, in the light of the decision of the Supreme Court in Gursahai Saigal and in the light of the decision in Muralilal Mahabir Prasad v. B. R. Vad, we would have held that reference to section 36(1)(vii) of the Act of 1961 must be read as a reference to the corresponding provisions of the Act of 1922, namely, section 10(2)(xi). However, as we have observed, it is not necessary for us to consider this aspect of the case and we, therefore, do not base our conclusion on reading into section 41(4) of the Act of 1961 the words 'or corresponding provisions of the Indian Income-tax act, 1922'.

45. The fourth alternative submission of Mr. Kaji that the word 'under' used in section 41(4) in the phrase 'under the provisions of clause (vii) of sub-section (1) of section 36' in section 41(4) must be read as 'as contemplated by' is sought to be supported by the decision of the Judicial Committee of the Privy Council in Free Lanka Insurance Co. Ltd. v. A.M. Ranasinghe. In that case the facts were that by section 133 of the Motor Car Ordinance, 1938, of Ceylon : if after a certificate of insurance has been issued under section 128(4) to the person by whom a policy has been effected, a decree in respect of any such liability as is required to be covered by a policy of insurance is obtained against any person insured by the policy the insurer shall pay to the persons entitles to the benefit of the decree any sum payable thereunder in respect of that liability. By section 6 of the Ceylon Interpretation Ordinance, 1900 : Whenever any written law repeals either in whole or in part a former written law, such repeal shall not, in the absence of and express provision to that effect, affect or be deemed to have affected any right acquired or incurred under the repealed written law. The responded before the Privy Council, who was injured in March, 1948, while driving a motor car which had come in collision with a motor lorry owing to the lorry driver's negligence, was, on September 24, 1951, awarded damages of Rs. 15,000 by the District Court. On appeal this amount was increased to Rs. 30,000 and the decree was passed against the owner of the lorry who was insured against third party risks, limited by statue to Rs. 20,000 with the appellant, insurance company. The respondent obtained leave to levy execution for his damages, but it was not known whether in fact he had recovered anything. Therefore, on September 17, 1957, he began the present action against the appellants and obtained judgment for Rs. 30,000 in the District Court, which was a firmed by the Supreme Court. On appeal before the Privy Council it was contended that inasmuch as the Motor Car Ordinance of 1938 was repealed as from September 1, 1951, and replaced by the Motor Traffic Act, 1951, before any decree was obtained by the respondent against the lorry owner, the respondent could not assert any statutory right under the Ordinance of 1938, but must claim exclusively under the Act of 1951, and that the essential condition of a claim was that a certificate of insurance should have been 'issued under section 100(4)' of the Act of 1951, whereas the only relevant certificate in this case was the one issued in 1948. The Act of 1951 contained no transitional provisions designed to preserve right or claims originating under the Ordinance of 1938. On these facts the Privy Council held that the respondent had, on September 1, 1951, 'acquired a right' against the appellants, within the meaning of paragraph (b) of sub-section (3) of section 6 of the Interpretation Ordinance, under section 133 of the Motor Car ordinance of 1938 although that right might be called in chore or contingent. In the context of section 128(1) and the certificate of insurance, Lord Evershed, delivering the opinion of their Lordships of the Privy Council, observed at page 553 of the report :-

'Their Lordships add that even if the case were not covered by section 6 of the Interpretation Ordinance it does not necessarily follow that the appellants should succeed upon this point. The vital words of section 105(1) of the Act of 1951 (section 133(1) of the 1938 Ordinance) are 'if a certificate of insurance has been issued under section 100(4)'. The latter subsection, however, does no more (as did not the corresponding sub section (4) of section 128 of the 1938 Ordinance) than require the issue of a certificate in 'the prescribed form'. As already stated, there appear never to have been any regulations under either piece of legislation prescribing the form to be used. It may therefore will be said that the words 'under section 100 (4)' should be construed as meaning no more than 'as contemplated by' that sub-section and, if so, that the relevant certificate issued by the appellants in 1948 satisfied the statutory requirement under the Act of 1951. Indeed, unless it were so, the remarkable result would seem to flow from the coming into force of the Act of 1951 that all motor car users would be instantly disqualified by virtue of section 99 of the Act from using their motor cars because of was not in force a policy of insurance in respect of third party risks in conformity with the requirements 'of this Part' of the Act. But in the circumstances it is unnecessary for their Lordships to express a final conclusion upon this point.'

46. Therefore, it is obvious that in order to effectuate the intention of the left is lecture and in order to see that an absurd result would not follow, by a liberal interpretation of the word 'under' occurring in section 100(4) and section 105(1) of the Act of 1951 before the Privy Council, namely, 'if a certificate of insurance has been issued under section 100(4)' it was interpreted to mean 'as contemplated by'. It is true that in the instant case also, if the word 'under' is interpreted in the sense as the Appellate Tribunal has read it in the instant case and if the word 'under' is not to be interpreted in the sense of 'as contemplated by' as was done by the Privy Council, a very peculiar situation would result. Under the principles of accountancy which were explained earlier, ordinarily speaking, a debt which has been written off as bad debt in the past should be brought back as receipt when in any subsequent year it has been recovered either in whole or in part. It is well-settled that so far as section 10(1) of the Act of 1922 was concerned and the corresponding provisions of section 28(1) of the Act of 1961 is concerned, ordinary principles of commerce and commercial account-keeping have to be borne in mind. It may be pointed out that in Badridas Daga v. Commissioner of Income-tax the Supreme Court pointed out the provisions of section 10(1) have to be read in the light of the ordinary principles of trade and ordinary practice of trade. What we have quoted above from Spicer and Pegler's Book-keeping and Accounts clearly shows that when a bad debt has been written off in the past but subsequently some part or whole of it comes to be paid back in the year in which it is received the amount has to be shown on the income side by appropriate entries in the books of account. If, therefore, the word 'under' occurring in the context of 'under the provisions of clause (vii) of sub-section (1) of section 36' in section 41(4) were to be interpreted otherwise, the interpretation would be contrary to all notions of trading community and notions of proper system of book-keeping and accounts. It is, therefore, in the fitness of things that the word 'under' by a process of interpretation should be given a wider meaning as was done by the Privy Council in Free Lanka Insurance Co. Ltd.'s case [1964] AC 541 , and by reason of that interpretation the words are read 'as contemplated by clause (vii) of sub-section (1) of section 36'. It is obvious that the bad debts written off in the assessment year 1959-60, so far as the present assessee is concerned, would be required to be treated as written off as contemplated by the provisions of clause (vii) of sub-section (1) of section 36 and, therefore, when recovered black, these items of bad debts would be treated as receipts under the provisions of section 41(4) of the Act of 1961. The concept of liberal interpretation even of a charging section does not arise in the instant case. We are not reading into these words anything which is contrary to the provisions of a charging section even if it is a charging section.

47. In connection with this controversy regarding the canon of construction to be applied even to the charging section, we may point out that in Banarasi Debi v. Income-tax Officer, the Supreme Court has observed as follows :

'Before construing the section (section 34(1)(a) of the Act of 1922), it will be useful to notice the relevant rules of construction of a fiscal statute. In Oriental Bank Corporation v. Wright [1880] 5 AC 842, the Judicial Committee held that if a statute professed to impose a charge, the intention to impose a charge on the subject must be shown by clear and unambiguous language. In Canadian Eagle Oil Co. v. R. Viscount Simon L.C. observed :

'In the words of Rowlatt J...... in a taxing Act one has to look merely that is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.' In other words, a taxing statute must be couched in express and unambiguous language. The same rule of construction has been accepted by this court in Gursahai Saigal v. Commissioner of Income-tax, wherein it was stated :

'... it is well recognised that the rule of construction that if a case is not covered within the four corners of the provisions of a taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter, applies only to a taxing provision and has no application to all provisions in a taxing statute. It does not apply to a provision not creating a charge for the tax but laying down the machinery for its calculation or procedure for its collection. The provisions in a taxing statute dealing with machinery for assessment have to be construed by the ordinary rules of construction, that is to say, in accordance with the clear intention of the legislature, which is to make a charge levied effective.' In that case, the court was called upon the construe of the provisions of section 18A of the Indian Income-tax Act, 1922, which laid down them machinery for assessing the amount of interest, and, therefore, this court did not apply the stringent rule of construction. Apart from the emphasis on the letter of the law, the fundamental rule of construction of a taxing statue is not different from that of any other statute and that rule is stated by Lord Russell of Killowen C.J., in Attorney v. Carlton Bank, thus, 'The duty of the court is... to give effect to the intention of the legislature, as that intention is to be gathered from the language employed having regard to the context in connection with which it is employed.''

48. In the case before it in Banarsi Debi v. Income-tax Officer, the Supreme Court observed that the general rule of construction of fiscal Acts would apply, and not the exception engrafted in that rule : for section 4 of the Amending Act could not be described as a provision laying down the Machinery for the calculation of tax. In substance it enabled the Income-tax Officer to reassess a person's income which had escaped assessment, though the time within which he could have so assessed had expired under the Act before the amendment of 1958. It resuscitated a barred claim. Therefore, the same stringent rules of contraction appropriate to a charging section should also apply to such a provision. Even in that context the Supreme Court observed at page 105 :

'If the construction sought to be placed by the learned counsel for the appellant be accepted, it would defeat the purpose of the amendment income cases. If the words were clear and exclude the class of cases where the notices were sent before 8 years from the date of assessment, but served thereafter, this court has to give them the said meaning.'

49. At page 108 the Supreme court observed :

'To summarize : The clear intention of the legislature is to save the validity of the notice as well as the assessment from an attack on the ground that the notice was given beyond the prescribed period. That intention would be effectuated if the wider meaning is given to the expression 'issued'. The dictionary meaning of the expression 'issued' takes in the entire process of sending the notice as well as the service hereof.

The said word used in section 34(1) of the Act itself was interpreted by courts to mean 'served'. The limited meaning, namely 'sent' will exclude from the operation of the provision a class of cases and introduce anomalies. In the circumstances, by interpretation, we accept the wider meaning the word 'issued' bears. In this view, though the notices were served beyond the prescribed time, they were saved under section 4 of the Amending Act.'

50. Therefore, even in the case of a section which was held to be a charging section, the rule of construction was that the intention of the legislature should be effectuated and not allowed to be frustrated and the wider of the two meanings of the word 'issued' was adopted by the Supreme Court. The same canon of construction would apply as regards the interpretation of the word 'under' used in section 41(4) in the context of 'deduction made under the provisions of clause (vii) of sub-section (1) of section 36 of the Act of 1961.' If the narrower interpretation of the word 'under' as sought for by Mr. J. P. Shah were to be applied and only deductions granted under clause (vii) of sub-section (1) of section 36 and under no other provision were to be held to fall under section 41(4), the intention of the legislature would be frustrated, whereas if the wider interpretation were to be given, namely, 'as contemplated by', as we done by the Privy Council in Free Lanka Insurance Co. Ltd.'s case [1964] AC 541 (PC), it would mean that the orders made in accordance with the corresponding provisions of the Act of 1922 would also be covered. Such a meaning would carry out the intention of the legislature which was to make the levy effective. It could never have been the intention of the legislature to say that all debts which were written off under the Act of 1922 would completely go scot-free if subsequent to the repeal of the 1922 Act they recovered the whole or part of the bad debts particularly when the same provision was re-enacted with the only modification regarding the business being carried or not. Under these circumstances we hold on the fourth submission in favour of the revenue and against the assessee.

51. Our Conclusions are, therefore, that the case is covered by section 24 of the general Clauses Act, 1897, and, therefore, the deductions allowed and the decisions taken under the Act of 1922 regarding the bad debts must be deemed to have been made under the corresponding provisions of section 36(1)(vii) of the Act of 1961 and, therefore, the whole of the provisions of section 41(4) would apply. In the alternative, our conclusion is that the word 'under' occurring in section 41(4) should be given the meaning 'as contemplated by' and hence also the orders passed under section 10 (2) (xi) of the Act of 1922, which was equivalent to section 36(1)(vii) of the Act of 1961, would be covered by the words of section 41(4). In view of either of these conclusions or as a result of the combined effect of the two, it would necessarily follow that in the instant case the partial recovery of bad debts made in the respective years under reference from Prabha Mills would be covered by section 41(4) of the Act of 1961. Under these circumstances the Tribunal erred in law in holding that the sum of Rs. 19,961 recovered in assessment year 1964-65, of Rs. 1,091 recovered from Prabha Mills in assessment year 1965-66 and of Rs. 16,634 recovered from Prabha Mills in assessment year 1967-68, were not includible in the taxable income of the referred to us in Income-tax reference No. 129 of 1974 in the negative, that is, in favour of the revenues and against the assessee. We have already indicated that, in the light of the decision in Commissioner of Income-tax v. Arvind Narottam, question No. (1) in Income-tax Reference No. 168 of 1974 in the negative must beanswered in the affrmative, that is, in favour of the assessee and against the revenue. Question No. (2), in the light of the above discussion is answered in the negative, that is, in favour of the revenue and against the assessee. The assessee will pay the costs of the Commissioner in each of these two references.

52. Mr. J. P. Shah has orally applied for a certificate for leave to appeal to the Supreme Court under section 261 of the Income-tax Act, 1961. In our opinion, the question decided by us is on points involving substantial question of law, and, therefore, this is a fit case in which leave should be granted. Leave is accordingly granted and certificate is issued so far as the question of section 41(4) of the Act of 1961 is concerned.


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