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TMI Blog1985 (1) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... tenant on a monthly rent of Rs. 600 for non-residential use. The appellant, despite repeated reminders, did not pay the rent for the period from October 1978 to August 1979. The respondent filed a suit on 2 12.79 for evicting the appellant on two grounds wilful default in payment of rent, and (2) material acts of waste committed in the building. It may be mentioned here that before filing a suit for eviction of the appellant, the respondent on 17.9.79 sent a two months` notice to the appellant. through his Advocate to clear up the dues. The appellant on receipt of the notice paid up the amount of the arrears, amounting to Rs. 6,600 on 3.10.79, i.e., within the stipulated period of two months. But, the respondent contended that in view of the past conduct of theappellant he was guilty of wilful default within the meaning of proviso to s. 10 (2) of the Act. So far as this appeal is concerned, as the entire rent had been paid up in pursuance of the notice dated 17.9.79 even prior to the filing of the suit, it is manifest that on the date of filing of the suit no cause of action in presenti having arisen, the suit should have been dismissed on this short ground alone as being not main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, the second ground was not pressed and the only point which survived for deter mination was whether there was any wilful default on the part of the appellant. The brief facts are that the appellant became a tenant under the father of the respondent in 1953 at a monthly rent of Rs. 15 which was subsequently mutually agreed to be increased to Rs. 49 per month. The respondent contended in his petition that the appellant became a defaulter in payment of the rent as he did not pay the rent for the months of June 1977 to January 1978. The respondent also issued a notice on 16.1.78 demanding the dues amounting to Rs. 392. The appellant sent a detailed reply on 30.1.78 alongwith a Bank Draft for Rs. 392 which was, however, not encashed by the respondent and returned to the appellant subsequent to the filing of an eviction petition which was filed on 11.8.1978. The Rent Controller found the tenant to be a wilful defaulter and consequently order his eviction. However, on appeal the Appellate Authority reversed the finding of the Rent Controller and accepted the plea of the tenant that as he was ill he was not able to pay the rent. In revision, the High Court did not agree with the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the eviction of the appellant. In Civil Appeal No. 2246 of 1982, the respondent- landladies let out the premises to the tenant-appellant for non-residential use on a monthly rent of Rs. 105. The respondents filed an eviction petition on 2.11.76 against the tenant on the ground of wilful default for non-payment of rent for the period from January 1976 to September 1976, i.e., for a period of 9 months. But before filing the eviction petition, the respondents on 6.7,1976 issued a notice to the tenant to pay the dues and on 17.7.76 the appellant paid a sum of Rs. 630 which was accepted by the landladies without prejudice. The Rent Controller found that the default in payment of rent was not wilful and therefore dismissed the appl.cation of the landladies. On appeal, the Appellate Authority reversed the finding of the Rent Controller and held that the default, was wilful. In revision, the High Court did not agree with the contention of the appellant that he was not wilful defaulter as immediately after filing of the eviction petition he had paid the entire arrears even before the serving of summons The High Court held that there was no satisfactory explanation by the tenant for non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while some put it in an affirmative form. To cut the matter short, from a review of the various Rent Acts the position that emerges is that the provisions relating to eviction are couched in three different types of default- (1) Acts which expressly mention 'wilful default' without defining the same, (2) Acts which do not mention the words 'wilful default' at all but confer a right on the landlord to evict the tenant on pure and simple default after a certain period of time when the rent has become due, which is also different in different States, (3) Acts which use the expression 'wilful default' but in a negative form rather than in an affirmative form. D These are the A.P. Buildings (Lea5e, Rent and Eviction) Control Act of 1960, The Orissa House Rent Control Act, 1967 and the Pondicherry Buildings (Lease & Rent Control) Act, 1969 (hereinafter referred to as the 'A P. Act, 'Orissa Act' and 'Pondicherry Act' respectively) The last category of the Acts is the Tamil Nadu Act, which is the Statute in question and which makes a marked improvement by broadening the ambit of 'wilful default' in the proviso to s. 10 (2) which is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is another statute which also contains the word 'wilful' in a negative form, the relevant portion of which runs thus: "Provided that in any case falling under clause (i) if the Controller is satisfied that the tenant's default to pay of tender rent was not wilful..." The aforesaid Acts undoubtedly contemplate that a default simpliciter would not be sufficient to evict the tenant but it must further be shown that the default was not wilful. The Act, however is silent on the mode and the manner in which a court may decide as to what is wilful and what is not wilful. Thus, the Act has left it to the courts to decide this question. So far as the Tamil Nadu Act is concerned, it clearly defines as to what is 'wilful default'. Proviso to s. 10 (2) of the Act runs thus: "Provided that in any case falling under clause (i) if the Controller is satisfied that the tenant's default to pay or tender rent was not wilful, he may, notwithstanding anything contained in section 11, give the tenant a reasonable time, t not exceeding fifteen days, to pay or tender the rent due by him to the landlord up to the date of such payment or tender and on such payment or tender, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty; or a recklessness in the performance of a duty. In other words, 'wilful default' would mean a deliberate and intentional default knowing full well the legal consequences thereof. In Words and Phrases', Volume 11 A (Permanent Edition) at page 268 the word 'default' has been defined as the non-performance of a duty, a failure to perform a legal duty or an omission to do something required. In volume 45 of 'Words & Phrases', the word 'wilful' has been very clearly defined thus: 'Wilful'-intentional; not incidental or involuntary: - - done intentionally, knowingly, and purposely, without justifiable excuse as distinguished from an act done carelessly; thoughtlessly, heedlessly or inadvertently: - in common parlance word 'wilful' is used in sense of intentional, as distinguished from accidental or involuntary. P. 296 - "Wilful" refers to act consciously and deliberately done and signifies course of conduct marked by exercise of volition rather than which is accidental, negligent or involuntary. In Volume III of Webster's Third New International Dictionary at page 2617, the word 'wilful' has been defined thus: "g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which but for the proviso would be within it...The natural presumption is that, but for the proviso, the enacting part of the section would have included the subject- matter of the proviso." Odgers in 'Construction of Deeds and Statutes' (Fifth Edn.) while referring to the scope of a proviso mentioned the following ingredients: P. 317 "Provisos-These are clauses of exception or qualification in an Act, excepting something out of, or qualifying something in, the enactment which, but for the proviso, would be within it." P. 318 "Though framed as a proviso, such a clause may exceptionally have the effect of a substantive enactment. " Sarathi in 'Interpretation of Statutes' at pages 294- 295 has collected the following principles in regard to a proviso:- (a) When one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject-matter of the proviso. (b) A proviso must be construed with reference to the preceding parts of the clause to which it is appended. (c) Where the proviso is directly repugnant to a section, the proviso shall stand and be held a repeal of the section as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Life Assurance Co.( [1897] AC 647) while guarding against the danger of interpretation of a proviso, Lord Watson observed thus: "a very dangerous and certainly unusual course to import legislation from a proviso wholesale into the body of the statute." A very apt description and extent of a provio was given by Lord Oreburn in Rhodda Urban District Council v. Taff Vale Railway Co.( [l909] AC 253.) where it was pointed out that insertion of a proviso by the draftsman is not always strictly adhered to its legitimate use and at times a section worded as a proviso may wholly or partly be in substance a fresh enactment adding to and not merely excepting something out of or qualifying what goes before. To the same effect is a later decision of the same Court in Jennings add Another v. Kelly([1940] AC 206) where it was observed: "We must now come to the proviso, for there is, I think, no doubt that in the construction of the section the whole of it must be read and a consistent meaning if possible given to every part of it The words are "provided that such licence shall be granted only for premises situate in the ward or district electoral division in which such increase in population ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o should be limited in its operation to the subject-matter of the enacting clause, the stand we have taken is sound. To expand the enacting clause, inflated by the proviso, sins against the fundamental rule of construction that a proviso must be considered in relation to the principal matter to which it stands as a proviso. A proviso ordinarily is but a proviso, although the golden rule is to read the whole section, inclusive of the proviso, in such manner that they mutually throw light on each other and result in a harmonious construction. In Hiralal Rattanlal etc. v. Staie of U.P. and Anr.( [1973] 1 S.C.C.216.) etc. this Court made the following observations: "Ordinarily, a proviso to a section is intended to take out a part of the main section for special treatment. It is not expected to enlarge the scope of the main section. But cases have arisen in which this Court has held that despite the fact that a provision is called proviso, it is really a separate provision and the so-called proviso has substantially altered the main section." We need not multiply authorities after authorities on this point because the legal position seems to be clearly and manifestly well establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early from the provisions of the section. The proper function of an explanation is to make plain or elucidate what is enacted in the substantive provision and not to add or substract from it. Thus an explanation does not either restrict or extend the enacting part; it does not enlarge or narrow down the scope of the original section that it is supposed to explain .. The Explanation must be interpreted according to its own tenor; that it is meant to explain and not vice versa." (P.P. 297-298.) Bindra in 'Interpretation of Statutes' (5th Edn.) at page 67 states thus: "An explanation does not enlarge the scope of the original section that it is supposed to explain. It is axiomatic that an explanation only explains and does not expand or add to the scope of the original section.. The purpose of an explanation is, however, not to limit the scope o the main provision.. The construction of the explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from the language used. An 'explanation' must be interpreted according to its own tenor ." The principles laid down by the aforesaid authors are fully supported by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same. Having, therefore, fully discussed the main scope and ambit of a proviso and an Explanation, we shall now proceed to elucidate the various provisions of the Act and other Acts. We have already discussed that although almost every State has its own Rent Act, neither the Explanation nor the statutory clause concerning the term 'wilful default' is mentained therein These Acts seem to proceed only on the simple word 'default' and perhaps to buttress their intention they have laid down certain guidelines to indicate the grounds of ejectment wherever a default takes place. Looking generally at such Acts, they seem to have first provided statutorily a particular date or time when the tenant on being inducted under the contract of tenancy, is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what extent does it affect the provisions of the Proviso: Explanation-For the purpose of this sub-section, default to pay or tender rent shall be construed as wilful, if the default by the tenant in the payment or tender of rent continues after the issue of two months' notice by the landlord claiming the rent;" If we analyse the various concomitants of the Explanation, the position seems to be that- (a) there should be a default to pay or tender rent, (b) the default should continue even after the landlord has issued two months' notice claiming the arrears or rent, (c) if, despite notice, the arrears are not paid the tenant is said to have committed a wilful default and consequently liable to be evicted forthwith. The question is; do these three conditions whittle down the effect of the proviso or merely seeks to explain the intendment of a wilful default ? One view which may be possible and which form the basis of the argument of the connsel for the tenants is that mere non-payment of arrears of rent after issue of two months' notice cannot in A all circumstances automatically amount to a wilful default if the nonpayment does not fulfil the various ingredients poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default as indicated by us above, he may give the tenant a reasonable time, not exceeding 15 days, to pay the entire rent and if this is complied with,the application for ejectment would stand rejected. The difficulty, however, is created by the Explanation which says that once a land lord gives a two months' notice to his tenant for paying the arrears of rent but the tenant continues in default even thereafter, then he is liable to be evicted. There is a good deal of force in this argument which has its own advantages. In the first place, it protects the court from going into the intricate question as to what is a wilful default and whether or not the conditions of a wilful default have been satisfied which, if permitted would differ from case to case and court to court. But the difficulty is that if such a blanket ban is put on the court for not examining the question of wilful default once the conditions laid down in the Explanation are satisfied then it would undoubtedly lead to serious injustice t-l the tenant. A subsidiary consequence of such an interpretation would be that even though the tenant, after receipt of the notice, may be wanting to pay the arrears of rent but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke away the mandatory duty cast on the Controller in the proviso to decide if a default is wilful or not. Indeed, if the landlord chooses to give two months' notice to his tenant and he does not pay the rent, then, in the absence of substantial and compelling reasons, the controller or the court can certainly presume that the default is wilful and order his eviction straightaway. We are unable to accept the view that whether two months' notice for payment of rent is given or not, it will always be open to the Controller under the proviso to determine the question of wilful default because that would render the very object of Explanation otiose and nugatory. We express our view in the matter in the following terms: (1) Where no notice is given by the landlord in terms of the Explanation, the Controller, having regard to the four conditions spelt out by us has the undoubted discretion to examine the question as to whether or not the default committed by the tenant is wilful. If he feels that any of the conditions mentioned by us is lacking or that the default was due to some unforeseen circumstances, he may give the tenant a chance of locus paenitentiae by giving a reasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a v. G. Maniklal Bhattad.( AIR 1966 Madras 67) Ramamurti, J. has drawn a very apt and clearcut distinction between a simple default and a wilful default and has pointed out A that in order to be a 'wilful default' it must be proved that the con duct of the tenant was such as would lead to the inference that his omission was a conscious violation of his obligation to pay the rent. In this connection, the learned Judge observed thus: "The decisions of this court have reportedly pointed B` out that there is a clear difference in law between default and wilful default and that non-payment of rent within the time specified by the Act, though would amount to default, cannot by itself be treated as wilful default, and that if the rent was paid after the expiry of the time in the following month within a short time thereafter, the default cannot be said to be wilful to warrant the punishment of eviction Keeping in mind the main object of the enactment, namely, prevention of unreasonable eviction of tenants, the principle that emerges from the several decisions is that for default to be regarded as wilful default, the conduct of the tenant should be such as to lead to the inferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplied with the notice within the stipulated time envisaged by the Explanation to Proviso to s. 10 (2) of the Act, by no stretch of imagination could be called guilty of wilful default. On the other hand, the conduct of the landlord in filing a suit and not encashing the Bank Draft was motivated with a view to get a decree for eviction on false excuse. Such a state of affairs could not be countenanced by the court. In these circumstances, we are of the opinion that the arrears having been paid through the Bank Draft, the question of eviction of the tenant did not arise nor did the question of default come into the picture merely because the landlord wanted to harass him by filing an eviction petition. The High Court was, therefore, clearly in error in passing the decree of ejectment against the tenant. We, therefore, allow the appeal and set aside the order of the High Court evicting the tenant. In civil appeal No. 1659 of 1982, as it was clearly a case of wilful default on the part of the tenant we affirm the order of the High Court evicting the tenant and dismiss the appeal. In civil appeal No. 3668 of 1982, some dispute arose between the parties as to whether the rent was to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defaulted in payment of tent from June 1976 onwards and after repeated demands, only a sum Or Rs. 1000 was paid by him on 1.4 77. leaving a substantial balance of arrears unpaid. The plea of the tenant that he had made payments to the Income Tax Department has not been proved, nor did the tenant have any right under the contract to pay any amount to the Income Tax Department and if he did so on his own, he must he held responsible for his conduct. Even so, the landlord contended that right from February 1977 to July 1978, the appellant was in arrears without any lawful cause. This was, therefore, a clear case of wilful default where the tenant did not pay the rent deliberately, consciously and intentionally. In these circumstances, the High Court was fully justified in holding that the default was wilful and affirming the decree passed by the Appellate court. The appeal is accordingly dismissed. The result is that all the appeals are disposed of as indicated above but in the circumstances there will be no order as to costs in any of the appeals. Civil Appeal No. 5769 of 1983 already stands disposed of in terms of our Order of September 12,1984. SABYASACHI MUKHARJI, J. With great ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on if he wants it and, if the Controller, after giving the tenant a reasonable opportunity of showing cause against the application, is satisfied with any of the various conditions which are stipulated in clause (i), (ii), (iii), (iv), (v), (vi) and (vii) then he shall make an order directing the tenant to put the landlord in possession of the building and if the Controller is not satisfied, he shall make an order rejecting the application. The Proviso to sub-section (2) of section 10 is as follows: "Provided that in any case falling under clause (i) if the Controller is satisfied that the tenant's default to pay or tender rent was not wilful, he may, notwithstanding any thing contained in section 11, give the tenant a reasonable time, not exceeding fifteen days, to pay or tender the rent due by him to the landlord up to the date of such payment or tender and on such payment or tender, the application shall be rejected." The Explanation which was added by Act 23 of 1973 to the said Proviso stipulates that for the purpose of this sub-section, default to pay or tender rent shall be construed as wilful, if the default by the tenant in the payment or tender of rent continues afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be other circumstances constituting wilful default. With respect, I differ. I will briefly note the reasons. As I read the provision, it appears to me that there must be satisfaction of the Controller whether default was wilful and a default will be construed as wilful, in my opinion, only where the landlord has given notice and two months have expired without payment of such rent. Default has been construed in various ways depending upon the context. 'Default' would seem to embrace every failure to perform part of one's contract or bargain. It is a purely relative term like negligence. (See in this connection Stroud's Judicial. Dictionary Vol. 1, Third Edition, page 757). It means nothing more, nothing less, than not doing what is reasonable under the circumstances; not doing something which you ought to do, having regard to the transaction. Similarly, default in payment imports some thing wrongful, the omission to do some act which, as between the parties, ought to have been done by one of them. It simply means non-payment, failure or omission to pay. (See Prem's Judicial Dictionary, Vol. I, 1964 page 483). Earl Jowitt defines 'default' as omission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r aliunde the Court comes to the conclusion that the default is wilful, for instance, in a case where there is chronic default, regular defaults or habitual defaults, the two months' notice is necessary or not. It was the argument on behalf of the respondents that in those circus- stances such notice was not necessary and this is the view which has found acceptance by my learned Brethren: I am unable to agree, with respect. If in cases where there are genuine and bona fide reasons for failure or non payment of rent which cannot be excused after two months' notice to pay rent, then other causes which lead to inference of wilful default cannot also be construed as 'wilful default' in the context of the Explanation. The legislature has provided an absolute and clear definition of 'wilful default'. Other circumstances cannot be considered as wilful default. In my opinion, the expression "shall be construed" would have the effect of providing a definition of wilful default in the proviso to sub-section (2) of section 10. If a definition is provided of an expression, then the Courts are not free to construe the expression otherwise unless it is so warranted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r about the purpose of introduction of the Explanation, i.e, to obviate the difficulties and divergence of judicial opinions depending upon varying circumstances, the legislature has provided a uniform definition to the concept of 'wilful default'. It is true that where two constructions are possible, one which avoids anomalies and creates reasonable results should be preferred but where the language is clear and where there is a purpose that can be understood and appreciated for construing in one particular manner, that is to say, avoidance of divergence of judicial opinions in construing wilful default and thereby avoiding anomalies for different tenants, one judge taking a particular view on the same set of facts, another judge taking a different view on the same set of facts, in my opinion, it would not be proper in such a situation to say that this definition of wilful default was only illustrative and not exhaustive. I cannot construe the expression used in the Explanation to the Proviso to sub-section (2) of section 10 as illustrative when the Legislature has chosen to use the expression "shall be construed". It has been observed that statutory provisions must be so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to realise that the situation could ever arise. This is not to say that statutes are to be construed in blinkers or with narrow and legalistic literalness, but only that effect should given to the intentions of Parliament as expressed in the statute, applying the normal canons of construction for resolving ambiguities or any lack or clarity." 1. 1983(2) Weekly Law Reports, 16 at 30. 2. 1983 (1) Weekly Law Reports 138 at 142. In the aforesaid view of the matter, I would construe the expression 'wilful default' in the Explanation to Proviso to subsection (2) of section 10 of the Act in the manner l have indicated. In that view of the matter, I would decide the appeals accordingly, that is to say, l would agree with my learned brethren in the order passed in those cases where eviction orders have been passed after two months' notice had been given and there was continuance of default by the tenant thereof. Appeals which have been disposed of on the basis of wilful default as understood in the manner indicated in the aforesaid observations of mine, I respectfully agree. Appeals which have been disposed of on wilful default other than in the manner I have indicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrow funds to finance their undertakings. Having regard to the legislative practice and usage referred to by us, it is obvious that if the Legislature intended that the capital employed' must include long term borrowings, the Legislature would not have used the flexible expression 'capital employed' but would have expressed itself unambiguously by providing that the 'capital employed' shall include long term borrowings. It is clear from the language used by the section that the Legislature proceeded on the basis that the expression 'capital employed' has no fixed definite meaning including or excluding long term borrowings and deliberately chose to leave it to the Central Board of Revenue to prescribe how the 'capital employed' shall be computed or in other words, what items shall be included and what items excluded in computing the 'capital employed' and by incorporating Rule 19A with retrospective effect in Section 80J by the Finance (No. 2) Act 1980, the Legislature clearly expressed its aproval of the manner of computation of the 'capital employed' prescribed by the Central Board of Revenue by making sub-rule (3) of Rule 19A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emembered that Section 80J enacts an exemption in a taxing statute and a certain margin of latitude is always allowed to the Executive in working out the details of exemption in a such taxing statute. It was laid down by this Court as far as back as 1959 in Pt. Banaarsi Dass Bhanol v. State of Madhy a Pradesh((1959) S.C.R. 427). "Now, the authorities are clear that it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods, and the like." So also in Sitaram Bishambardas and Ors. v. State of U.P. and Ors.( [1972] 2 S.C.R. 141) this Court upheld the validity of Section 3D (1) of the U.P. Sales Tax Act 1948 which authorised the levy of a tax on the turnover of first purchases made by dealer or through a deal r acting as a purchasing agent, in respect of such goods or class of goods and at such rates, subject to a maximum, as may from time to time be notified by the State Government and Hegde, J. speaking on behalf of the Court observed: E 'It is true that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to select the persons on whom the tax is to be levied or the goods or the transactions on which the tax is to be levied. In the Act, under s. 3 the legislature has sought to impose multi-point tax on all sales and purchases. After having done that it has given power to the executive, a high authority and which is presumed to command the majority support in the legislature; to select for special treatment dealings in certain class of goods. In the very nature of things, it is impossible for the legislature to ennumerate goods. dealings in which Sales. Tax or Purchase tax should be imposed. It is also impossible for the legislature to select the goods which should be subjected to a single point sales or purchase tax. Before making such selections several aspects such as the impact of the levy on the society, economic consequences and the administrative convenience will have to be considered. These factors may change from time to time. Hence in the very nature of things, these details have got to be left to the executive." The principles laid down in these observations from the decided cases clearly govern the present case and conclusively repel the contention or Mr. Palkhivala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strict vigilance and control over the rule making power exercised by the Central Board of Revenue. This is a strong circumstance which militates against the argument based on excessive delegation of legislative power. This view receives considerable support from the decision of the Privy Council in Powell v.Appollo Company Limited(1) where the Judicial Committee, while negativing the challenge to the constitutionality of Section 133 of the Customs Regulation Act of 1879 which conferred power on the Governor to impose tax on certain articles of import, observed as follows: "It is argued that the tax in question has been imposed by the Governor and not by the Legislature who alone had power to impose it. But the duties levied under the Order-in V Council are really levied by the authority of the Act under which the Order is issued. The Legislature has not parted with its perfect control over the Governor, and has the power, of course, at any moment, of withdrawing or altering the power which they have entrusted to him. In these circumstances, their Lordships are of opinion that the judgment Of the Supreme Court was wrong in declaring Section 133 of the Customs Regulation Act of 187 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputation of the 'capital employed' as on the first day of the computation period was ultra vires the rule making authority of the Central Board of Revenue under sub- section (1) of Section. 80J This argument of Mr. Palkhivala is also unsustainable and must be rejected. It may be noted that when sub-section (1) of Section 80J speaks of 'capital employed' in an industrial undertaking or business of a hotel, it does not refer to 'capital employed' during the previous year but it uses the expression 'capital employed' in respect of the previous year, There is a vital difference between the expression "during the previous year" and the expression "In connection with the previous year". The argument of Mr. Palkhivala would have had great force if the reference in sub-section (1) of Section 80J would have been to 'capital employed' during the previous year- Then it could have been contended with considerable plausibility that the 'capital employed' 11 cannot be computed as on the first day of the previous year, but it should be taken to be the average amount of 'capital employed' during the previous year. But the expression used by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also the specification of the point of time as on which the capital of the company shall be computed. Therefore" even if the words "in respect of the previous year" were absent, it would have been competent to the Central Board of Revenue as the rule making authority to provide for the computation of the 'capital employed as on the first day of the computation period, as was done by the Legislature in the case of the Companies (Profits) Surtax Act 1964. The words "in respect of the previous year" are facilitative of the computation of the 'capital employed' being prescribed as on the first day of the computation period. We cannot therefore accept the contention of Mr. Palkhivala that Rule l9A in so far as it provided for computation of the 'capital employed' as on the first day of the computation period was outside the rule making authority of the Central Board of Revenue under sub-section (1) of Section 80J. We are therefore of the view that Rule 19A in so far as it excluded borrowed monies and debts in computation of the 'capital employed' and provided for computation of the 'capital employed' as on the first day of the computation period wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1972 is valid ? The material provisions Of Rule 19A read as follows:- (1) For the purposes of S. 80J, the capital employed in an industrial undertaking or the business of a hotel shall be computed in accordance with sub- rules (2) to (4), and the capital employed in a ship shall be computed in accordance with sub-rule 5). (2) The aggregate of the amounts representing the values of the assets as on the first day of the computation period, of the undertaking or of the business of the hotel to which the said section 80J applies shall first be ascertained in the following manner: (i) in the case of assets entitled to depreciation, their written down value; (ii) in the case of assets acquired by purchase and not entitled to depreciation, their actual cost to the assessee: (iii) in the Case of assets acquired other-wise then by purchase and not entitled to depreciation, the value of the assets when they became assets of the business; (iv) in the case of assets being debts due to the person carrying on the business the nominal amount of those debts; (v) in the case of assets being cash in hand or bank, the amount thereof. Explanation 1: In this rule, "Computation period" means t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial undertaking or ship or business of the hotel as the case may be, computed in the prescribed manner in respect of the previous year relevant to the assessment year (the amount calculated as aforesaid being hereafter, in this section, referred to as the relevant amount of capital employed during the previous year) (2) The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or to operate its cold storage plant or plants or the ship is first brought into use or the business of the hotel starts functioning (such assessment year being hereafter, in this section, referred to as the initial assessment year) and each of the four assessment years immediately succeeding the initial assessment year. x x x (4) This section applies to any industrial undertaking which fulfills all the following conditions, namely:- (i) it is not formed by the splitting up, or the reconstruction, of a business already in existence; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found to be inconsistent with and contrary to the provisions of the section, the rule has to be pronounced invalid. Whether the rule is in conformity with and is consistent with the section or whether the rule is inconsistent with and contrary to the provisions of the section, must necessarily be determined on a proper interpretation of the section. Principles of construction of any statute or any statutory provision are well-settled. The purpose of interpretation of any statute is to gather the true intention of the Legislature. It is well settled that "if the words of a statue are clear and unambiguous, they themselves indicate what must be taken to have been the intention of Parliament and there is no need to look elsewhere to discover their intention or their meaning". (See Halsbury's Laws of England, 4th Edn. Vol. 44 at P. 522). When the words of a statue are clear, plain or unambiguous, it becomes the duty of the Court to expound those words in their natural and ordinary sense, as the words used themselves best declare the intent of the Legislature If on a fair reading of a section, the words used appear to be plain and unambiguous and are reasonably susceptible to one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m an industrial undertaking or ship or the business of a hotel to which the section applies, there shall, in accordance with and subject to the provisions of the section, be allowed in computing total income of the assessee, a deduction from such profits and gains (reduced by the deduction, if any, admissible to the assessee under S. 80HH or S. 80HHA) of so much of the amount thereof as does not exceed an amount calculated @, 6 % per annum on the capital employed in the industrial undertaking or ship or business of the hotel as the case may be, computed in the manner prescribed in respect of the previous year relevant to the assessment year (the amount calculated aforesaid being hereinafter, in this connection referred to as the relevant amount of capital employed during the previous year) For qualifying for relief under this section, an assessee must derive profits and gains from an industrial undertaking or ship or the business of a hotel to which the section must be applicable. It is not in dispute that the assessees who have approached the Court have derived profits and gains from industrial undertaking set up by them and they qualify for relief under this section. A plain re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he undertaking producing profits and gains of the undertaking, the Legislature would have and could have easily made suitable provisions. The Legislature must be presumed to have known that the capital employed in an undertaking may consist of and, in fact, does consist of assessee's own capital and also capital borrowed by the assessee. It is common knowledge that most of the undertakings carry on their activities with borrowed capital in addition to own capital employed in the undertakings. Inspite of the knowledge of the Legislature that undertakings are carried on with borrowed capital, the Legislature in its wisdom has in this section mentioned capital employed in the undertaking for earning profits and gains of the undertaking without making any distinction between own capital and borrowed capital and has provided for relief in respect of the capital employed in the undertaking on the basis of profits and gains of the undertaking earned by virtue of employment of such capital. It is not disputed and cannot be disputed that profits and gains of the undertaking to be ultimately included in the total income of the assessee are produced by the capital, whether assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f will be available. As the sub-section in clear and unequivocal terms provides that S. 80J will apply to such an undertaking, the benefit intended to be given to the undertaking under this section cannot be denied to such an undertaking by any rule which will clearly have the effect of negativing the clear and unambiguous statutory provisions. The argument of Mr. Palkhivala that the expression 'capital employed' is a term of art and is usually understood in business parlance and commercial circles and also in commercial accountancy in the sense that it includes not only owner's capital but also borrowed capital, particularly if the borrowing is on a long term basis, to my mind, has considerable force. It may be true that in different context and particularly in the context of return of capital, capital employed may not include borrowed capital. Unless the content otherwise requires and except in the case of return of capital, the expression 'capital employed' in its ordinary sense is understood to include borrowed capital. It refers to the capital, whatever may be the source, which is employed in any undertaking or venture for carrying on the business for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Act in 1949 by section 13 of the Taxation Laws (,Extension to Merged States and Amendment) Act 1949 (Act 67 of '919), extending the benefit to the actual manufacture or production of articles commencing from a prior date, namely, April 1, 1948. After the country had gained independence in 1947 it was most essential to give fillip to trade and industry from all quarters. That seems to be the background for insertion of section 15C. It is also significant that the limit of the number of years for the purpose of claiming exemption has been progressively raised from the initial 3 years in 1949 to 6 years in 1953. 7 years in 1951, 13 years in 1956 and 18 years in 1968. The incentive introduced in 1949 has been thus stopped up ever since and the only object is that which we have already mentioned." In the case of Rajapopalayan Mills Ltd. v. Commissioner of Income Tax Madras,( (1976) 115 ITR 777) this Court had also held at page : "The law of income-tax in a modern society is intended to achieve various social and economic objectives. It is often used as an instrument for accelerating economic growth and development. S. 15C is a provision introduced in the . Indian I.T. Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t capital employed for earning the profits of the undertaking is the capital which is entitled to the benefit of the relief. The exclusion of borrowed capital by the rule making authority in the rules prescribed for computation of the relief under S. 80J is inconsistent with and derogatory to the provisions of the statute. The said rule not only fails to carry out the purpose of the said section but in fact tends to defeat the same and the rule runs clearly contrary to the provisions of the statute. The rule excluding borrowed capital must, therefore, be held to be bad and invalid. The argument of Mr. Palkhivala that any such rule framed by the rule making authority including or excluding any part of the capital employed in the undertaking in the absence of any guideline will also be clearly beyond the power of the rule making authority, to my mind. is sound. In the section itself or in any other provision of the Act it does not appear that there is any provision laying down any guideline which may entitle the rule making authority to exclude any part of the capital employed, whether it is borrowed capital or own capital. No such provision or guideline is there in the Act. To my m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time element. In other words, the section does not authorise the rule-making authority to prescribe a time-limit within which the declaration is to be filed by the registered dealer. The view that we have taken is supported by the language of S. 13 (4) (g) of the Act which states that the State Government may make rules for 'the time within which, the manner in which and the authorities to whom any change in the ownership of any business or in the name, place or nature of any business carried on by any dealer shall be furnished.' This makes it clear that the Legislature was conscious of the fact that the expression 'in the manner' would denote only the mode in which an act was to be done, and if any time limit was to be prescribed for the doing of the act, specific words such as 'the time within which' were also necessary to be put in the statue. The Privy Council in the case of Utah Construction & Engineering Pvt. Ltd. and Anr. v. Pataky,( [196513 All. E.R. 650) observed at pages 653-654: "Their lordships now pass to S. 22 (2) (g) (iv) and (v). Sub-paragraph (iv) empowers the Governor to make regulations "relating to the manner of carrying out.. excava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions laid down in S 80J for being entitled to the relief intended to be granted to an undertaking which comes within the purview of S.80J. In any event, such inclusion or exclusion on any consideration will be a matter of policy to be determined by the Legislature and not a matter for the rule making authority to lay down in prescribing the mode of computation. The decision of the Calcutta High Court in the case of Century Enka Ltd. v. I.T.0.,( [1977] 107 ITR 123.) the decision of the Madras High Court in the case of Madras Industrial Linings Ltd. v. I.T.0.( [1977] 110 ITR 256), the decision of the Allahabad High Court in Kota Box Manufacturing Co. v. I.T.0.( [1980] 123 ITR 638) the decision of the Punjab and Haryana High Court in the case - of Ganesh Steel Industries v. I.T.0.( [1980] 126 ITR 258), the decision of the Andhra Pradesh High Court in the case of Warner Hindustan Ltd. v. I.T.0.( [1982] 134 lTR .158) holding the rule to the extent it excludes borrowed capital in the computation of capital employed for the purpose of granting relief under section 80J to be invalid, are correct and l have no hesitation in upholding these decisions 'The contrary view expressed . b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and the section have a legislative history, which is relevant to the discussion. Their Lordships entertain no doubt that time alone will not validate an Act which when challenged is found to be ultra vires; nor will a history of a gradual series of advances till this boundary is finally crossed avail to protect the ultimate encroachment." In the case of Campbell College Belfast (Governors) v. Commissioner of Valuation for Northern Ireland(l), the House of Lords while considering the validity of payment of rates by fee paying public school in Northern Ireland which has continued for over 132 year.. despite the terms of s. 2 of the Valuation (Ireland) Act Amendment Act, 1954, held at p. 941 to 942 : " my Lords, for my part I am quite unable to apply that principle to a statute although it was passed` over 100 years ago, but its language is plain and unambiguous and it was not misconstrued until the decision in the Alexandra College case 60 years later. True it is that fee paying schools did always pay rates in accordance with section 2, but until 1914 that was not because it was assumed that section 2 was con trolled by the proviso, and that charitable purposes bore a limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the rule, prescribing that capital employed should be computed on the basis of the capital employed on the first day of the year, must on a proper construction of the section be also held to be invalid. The section clearly provides that the deduction to be allowed is to be computed in the prescribed manner in respect of the previous year relevant to the assessment year. The deduction to be allowed is on the profits and gains of the undertaking earned in the relevant year in respect of the previous year relevant to the assessment year. Profits and gains which are to be taken into account are the profits and gains earned in the relevant year and the year must necessarily mean and include the whole of the year and not some days or months of the year. The capital employed for earning the posts and gains - dring the whole year must necessarily be the capital which is entitled to the benefit of the section. Capital employed on the 1st day of the year does not produce the profits of the entire relevant year, unless the very same amount of capital remains employed throughout the year. It does not usually happen and in any event it may not happen. Therefore, by prescribing the 1st day o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year". The Calcutta High Court and Andhra Pradesh High Court have both held this part of the rule fixing the first day of the year for computing the capital employed for the purpose of granting relief under S. 80J to be invalid. I find no difficulty in upholding the decision of the Calcutta High Court and of the Andhra Pradesh High Court on this question. I know proceed to consider the other question about the validity of the amendment of section 80J introduced by the Finance Act 2 of 1980. By the amendment the provisions contained in the - A rule excluding borrowed capital and fixing the first day of the year for computation of capital employed for the purpose of relief under S. 80J have been incorporated in the section itself with retrospective effect from 1.4.72. On behalf of some of the assessees the amendment both with; regard to its prospective and retrospective operation has been challenged. Dr. D. Pal, supported by other learned counsel, addressed us mainly on the aspect of prospective operation, while supplementing and supporting the submissions of Mr. Palkhivala on the aspect of retrospective operation. Mr. Palkhivala who has been the principal spokesman f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rease or reduce the quantum of relief intended to be given under this section. In providing that relief intended under S. 80J would be allowed only to owner's own capital and not to any borrowed capital, there can be no infringement of Art. 14. No entrepreneur or businessman can claim as a matter of right that relief by way of incentive should be provided to new undertakings to be set up by him. The Parliament provides for such relief in pursuance of a policy and policy may change from time to time in view of the situation prevailing from time to time. The Parliament may legitimately feel that borrowing by businessman may not be encouraged and persons should be encouraged to bring their own money for setting up new undertakings and Parliament may provide for appropriate relief by way of incentive to the owner's capital employed to the exclusion of borrowed capital in the setting up of any new industrial undertaking. Whether it is prudent to do so is essentially a matter for the Parliament in its wisdom to decide. It is not for this Court to sit in judgment over the wisdom of the Parliament in the framing of its policy. The discrimination in the matter of granting relief to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their affairs on the basis of the law as it stood. The existence of an invalid rule and the tendency of appeals in this Court against the judgment of the various High Courts declaring the rule to be invalid cannot be considered to be relevant factors, particularly when the statutory provision is clear, for guiding the assessee who has to carry on its normal trading activities, in arranging its affairs. The submission is that the withdrawal or relief lawfully granted and properly enjoyed by the assessees after this long lapse of time, when no serious prejudice is caused or is likely to be caused to the public exchequer and on the other hand a heavy unwarranted financial burden along with other difficulties and problems are created for the assessee, cannot be said to be in public interest and must be held to be unreasonable, arbitrary and violative of Art. 14 and 19 of the Constitution. The learned Attorney General has submitted that retrospective operation of the provision does not suffer from any infirmity and is not arbitrary or unreasonable nor is it violative of Art. 14 and 19 of the Constitution. He argues that prior to rule 19-A being considered by some of the tribunals and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief over these years for lack of provision of a suitable rule prescribing the manner p of computation of such relief, has amended the section itself with retrospective effect from 1972 in the interest of the assessees them selves. It is the submission of the Attorney General that as the amendment with retrospective effect has been made essentially in the interest of the assessees to enable them to enjoy the relief intended to be given under S. 80J, the retrospective effect of the amendment cannot be said to be unreasonable or arbitrary and the retrospective amendment dose not violate either Art. 14 or 19 of the Constitution, even if the retrospective effect may operate harshly on some assessees. Before considering the arguments advanced on behalf of the parties, I propose at this stage to refer to some of the decisions cited from the Bar on this aspect. In the case of Epari Chinna Krishna Moorthy, Proprietor Epari A Chinna Moorty and Sons, Berhampur Orissa v. State of Orissa,( [1964 7] S.C.R. 185.) it was observed at p. 191:- "Mr. Sastri also argued that the retrospective operation of the impugned section should be struck down as unconstitutional, because it imposes an unreasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in regard to its retrospective operation. We do not think that such a mechanical test can be applied in deter mining the validity of the retrospective operation of the Act. It is conceivable that cases may arise in which the retrospective operation of a taxing or other statute may introduce such an element of unreasonableness that the restrictions imposed by it may be open to serious challenge as unconstitutional, but the test of the length of time covered by the retrospective operation cannot, by itself, necessarily be a decisive test. We may have a statute whose retrospective operation covers a comparatively short period and yet it is possible that the nature of the restriction imposed by it may be of such a character as to introduce a serious infirmity in the retrospective operation. On the other hand we may get cases where the period covered by the retrospective operation of the statute, though long, will not introduce any such infirmity. Take the case of a Validating Act. If a statute passed by the legislature is challenged in proceedings before a Court, and the challenge is ultimately sustained and the statute is struck down, it is not unlikely that the judicial proceedings m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ras & Anr.( [1973] 2 S.C.R. 54 this Court observed at P. 61:- "The object of such an enactment is to remove and rectify the defeat in phraseology or lacuna of other nature and also to validate the proceedings, including realisation of tax, which have taken place in pursuance of the earlier enactment which has been found by the Court to be vitiated by an infirmity. Such an amending and validating Act in - the very nature of things has a retrospective operation. Its aim is to effectuate and carry out the object for which the earlier principal Act had been enacted. Such an amending and validating Act to make small repairs' is a permissible mode of legislation and is frequently resorted to in fiscal enactments." Similar observations have been made by this Court in the case of Hira Lal Rattan Lal etc. etc. v. State of U.P. & Anr. etc([1973] 2 S.C.R. 502) at P. 511:- "A feable attempt was made to show that the retrospective levy made under the Act is violative of Art. 19(t) (f) and (g). But we see no substance in that contention. As seen earlier, the amendment of the Act was necessitated because of the legislature's failure to bring out clearly in the principal Act its in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment to mobilize resources and to levy tax. In view of the complexity of fiscal adjustment of diverse elements the Parliament necessarily enjoys a very wide discretion in the matter of fiscal legislation. To meet various expenses for proper administration, maintenance of defense and security, for promoting peace and prosperity and for development of social, economic and all round growth of the country, the Government must have resource and sufficient funds at its disposal. Suitable provisions have necessarily to be made for raising the revenue and for proper realisation of funds to be collected to meet such expenses. Appropriate legislations including various fiscal laws are enacted for this purpose. Imposition of any tax by the Parliament is therefore considered to be made in public interest. It may so happen that any provision of any enactment imposing a particular levy may be challenged in Court and may be challenged successfully; and the particular levy may, for some reason or other, be held to be constitutionally invalid. If any particular provision of any statute imposing any tax which has been or is being collected, is struck down as unconstitutional, the financial arrangeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as there was none, but is seeking to validate an invalid rule which had sought to deprive the assessee of the benefit which the Parliament had clearly bestowed on the assessee by the section. The effect of the present amendment by seeking to incorporate the provisions of the rule declared invalid in the section itself is to withdraw with retrospective effect the relief which had been earlier granted by the Parliament in so far as the relief extends to borrowed capital employed in the undertaking and thereby to impose on the assessee a burden of tax which was not there for all these years. As a matter of policy it may be open to the Parliament to withdraw the relief granted to borrowed capital by an amendment with prospective effect consequent on any such amendment. To withdraw with retrospective effect the benefit of relief unequivocally granted by the section to an assessee who qualified for such relief and was lawfully entitled to enjoy the benefit of such relief and has in fact in many cases enjoyed the benefit for all these years, prior to the present amendment with retrospective effect, cannot, in my opinion, be said to on any just and valid grounds and cannot be considered t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider any such action necessary and proper and any such act done by the Parliament must also be regarded to have been done in public interest. However, the withdrawal or modification with retrospective effect of the relief properly granted by the statute to an assessee which the assessee has lawfully enjoyed or is entitled to enjoy as his vested statutory right depriving the assessee of the vested statutory right, has the effect of imposing a levy with retrospective effect for the years for which there was no such levy and cannot, unless there be strong and exceptional circumstances justifying such withdrawal or modification, be held to be reasonable or in public interest. This kind of retrospective amendment, seeking to defeat an accrued statutory right is likely to affect the sanctity of any statuory provision and may A create a state of confusion. The only circumstance which appears to have led to the present retrospective amendment is the existence of the invalid rule. The existence of any invalid rule seeking to deny an assessee a benefit clearly and unequivocally granted to an assessee by the Legislature, lawfully and properly enjoyed or to be impugned amendment in 1980 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guilty of violation provision of other state and may be visited with panel consequences. This position cannot be and is not disputed by the learned A Attorney General who has, however, argued that taking into consideration the peculiar facts and circumstances, penal provisions may not be enforced. This argument does not impress me. The assessee has, in any event, to run the risk and for no fault on his part has to place itself at the mercy of the authorities for facing consequences of violation of statutory provisions, which but for the introduction of retrospective amendment, would not have been violated by the assessee. To establish arbitrariness or unreasonableness it does not become necessary to prove that the undertaking of the assessee will be completely crippled and will have to be closed down in consequence of the withdrawal of the relief with retrospective effect. There cannot be any doubt about the real possibility of very serious prejudice being caused to the assessee for no fault of the assessee. In my opinion, the possibility of very grave prejudice to the assessee by the withdrawal of the relief with retrospective effect, in the absence of any justifiable ground and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust reason very serious financial and other problems. Imposition of any tax with retrospective effect for years for which no such tax was there, cannot also be considered to be just and reasonable from the point of view of revenue. The years for which levy is sought to be imposed with retrospective effect had already passed and there cannot be any proper justification for imposition of any fresh tax for those years. Such retrospective taxation is likely to disturb and unsettle the settled position; and because of such imposition of retrospective levy for the years for which there was no such levy, assessments for those years which might already have been completed and concluded will get upset. If the State is in need of more funds, the State instead of seeking to levy any tax with retrospective effect can always take appropriate steps to collect any larger amount so required by imposition of higher taxes or by other appropriate methods. I have already observed that Validating Acts which seek to validate the levy of any tax with retrospective effect do not in effect impose any fresh tax with retrospective effect and Validating Acts stand on an entirely different footing. T, therefor ..... 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