Allahabad High Court
Commissioner Of Income-Tax vs Pehlaj Rai Daryanmal on 5 March, 1991
Equivalent citations: [1991]190ITR242(ALL)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
JUDGMENT B.P. Jeevan Reddy, C.J.
1. Under Section 256(2) of the Income-tax Act, 1961, the Tribunal has stated the following question :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's view that the words 'cultivator, grower or producer' occurring at the end of Rule 6DD(f) qualify the products of horticulture or agriculture only and they do not qualify the other clauses mentioned in the said rule ?"
2. The assessee is a registered firm dealing in timber. While scrutinising the accounts for the previous year relevant to the assessment year 1970-71, the Income-tax Officer found that the assessee has made payments for purchase of timber to the extent of Rs. 28,565 to various parties in cash exceeding Rs. 2,500. The assessee admitted that these payments were made at Kanpur. The Income-tax Officer felt a doubt about the identity of the recipients of the said amount. Accordingly, he disallowed the deductions and added back the said amount to the assessee's income. On appeal, however, the Appellate Assistant Commissioner opined that the payments made for purchase of forest produce are exempt from the operation of Section 40A(3) by virtue of Rule 6DD(f)(i) of the Income-tax Rules. Accordingly, he allowed the appeal. The Revenue carried the matter in appeal to the Tribunal which dismissed the same agreeing with the opinion of the Appellate Assistant Commissioner, whereupon the present reference was obtained.
3. It is found by the authorities under the Act as well as by the Tribunal that these payments were made not directly to producers of forest produce but to brokers or timber suppliers, as the case may be. It is in the light of this fact that the question of law referred herein has to be gone into. The assessee's case is that the words "cultivator, grower or producer" occurring at the end of Clause (f) qualify only the words occurring in the immediately preceding sub-clause, namely, Sub-clause (iv), and not all the four sub-clauses. For a proper appreciation of this contention, it would be appropriate to set out Sub-section (3) of Section 40A and Rule 6DD(f) in so far as they are relevant :
"40A(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1989) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding ten thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduduc-tion :....
Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding ten thousand rupees 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."
"Rule 6DD. No disallowance under Sub-section (3) of Section 40A shall be made where any payment in a sum exceeding ten thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely :--...
(f) Where the payment is made for the purchase of-
(i) agricultural or forest produce ; or
(ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming ; or
(iii) fish or fish products ; or
(iv) the products of horticulture or agriculture, to the cultivator, grower or producer of such articles, produce or products."
4. The assessee's case is that, in the case of payment made for the purchase of forest produce, it is not necessary that the payment is made to the grower or producer of forest produce ; it is enough that the payment is made for the purchaser of forest produce. Whereas the case of the Department is that, in the case of purchase of any of the produce or products mentioned in the several sub-clauses, payment must have been made to the cultivator, grower or producer of such articles alone to avail of the benefit of the said clause.
5. On a reading of the clause, we are of the opinion that the contention urged by the Revenue is the correct one. In the first two sub-clauses, the word "produce" is used and in the next two sub-clauses, the word "products" is used. Both these words "produce" and "products" are used in the concluding words. If the assessee's contention is right, the use of the word "produce" in these concluding words was unnecessary and uncalled for. In other words, if these concluding words qualify only Sub-clause (iv), it would have been enough to use the word "products", since Sub-clause (iv) uses only the word "products" but not the word "produce". The intention underlying Clause (f) also supports our contention. The idea was that since the cultivators, growers or producers of agricultural or forest produce, produce of animal husbandry, fish or fish products are mostly residents of rural areas not used to banking systems or not having bank accounts, the requirement of Sub-section (3) of Section 40A was impracticable and would lead to difficulties in its application. The idea could never have been to exempt all the producers of forest produce or other produce and products mentioned in Sub-clauses (i) to (iii) from whomsoever they are purchased. We are, therefore, of the opinion that the Tribunal was in error in holding that the concluding words qualify only Sub-clause (iv) and do not qualify all the sub-clauses occurring in clause (f). The question referred is, accordingly, answered in the following terms :
The words "cultivator, grower or producer" occurring at the end of Rule 6DD(f) qualify the words occurring in all the preceding four sub-clauses and not only in Sub-clause (iv).
6. The answer is, accordingly, in favour of the Revenue and against the assessee. No costs.