ivil Appeal Nos
1431 33NT of 1976
Appeals by Certificate from the Judgment and Order dated 272
1976 of the Ahmedabad High Court in Income Tax Refer ence Nos 129 and 168 of 1974
JH Parekh
PH Parekh and Ms Shalini Soni for the Appellant
SC Manchanda
KP Bhatnagar and Ms A Subhashini for the Respondent
The Judgment of the Court was delivered by THOMMEN J
These appeals under certificate arise from the common judgment of the High Court of Gujarat in the Commissioner of Income Tax Gujarat 111 vs Poonjabhai Vanma lidas
The assessee is the same in all the cases
The assessment years in question are 1964 65
1965 66 and 1967 68
In the relevant previous years
the assessee received certain amounts and they were assessed under sec tion 414 of the Income Tax Act 1961 hereinafter referred to as the 1961 Act
The contention of the assessee was that he was not assessable under section 414 of the 1961 Act because these amounts had been written off as bad debts in the year 1959 60 and his claim tot deduction though initially disallowed by the Income Tax Officer
was subse quently allowed by the Income Tax Appellate Tribunal in ITA Nos
673 676 AHD dated 127
The business of the assessee had discontinued prior to the previous year in which any part of the amount was received and consequently it was contended
these amounts when received were not assessable to income tax under section 414 of the 1961 Act as that section was not in pari materia with section 102xi of the Income Tax Act 1922  1922 Act  in terms of which the amounts had been written off as bad debts
This contention was rejected by the Income Tax Officer and the amounts were brought to tax
The orders of assessment were confirmed by the 209 Appellate Assistant Commissioner
On further appeal by the assessee the Tribunal held accepting the assessee s con tention that the amounts could not be taxed under section 414 of the 1961 Act for that section had no application to amounts written off in 1959 60 in terms of section 102xi of the 1922 Act when it was in force
On a refer ence the High Court held that the amounts in question were includable in computing the taxable income of the assessee in respect of the relevant years under section 414 of the 1961 Act
The questions referred were accordingly answered by the High Court against the assessee and in favour of the Revenue
Hence the present appeals
Section 102xi of the 1922 Act reads 10
Business 1       2 Such profits or gains shall be computed after making the following allowances namely xi when the assessees 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 the 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 assessee Provided that if the amount ultimately recovered on any such debt or loan is greater than the difference between the whole debt 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 There is no dispute that the assessee s accounts were not kept on cash basis
There is also no dispute that the assessee s business had discontinued prior to the year of recovery of the amounts in question If the amounts had been received prior to the repeal of the 1922 Act the entire transaction would have been covered by the provisions of 210 section 102xi of that Act and the business having been discontinued prior to the relevant years of receipt these amounts would not have been taxable
See Commissioner of Income Tax Madras vs Express Newspapers Ltd But the amounts in question here were recovered after the coming into force of the 1961 Act which repealed the 1922 Act
The question therefore is whether the amounts which had been written off in terms of section 102xi of the 1922 Act but subsequently received after the repeal of that provision
could be brought to tax in terms of the relevant re enacted provisions
Tax is sought to be levied under the 1961 Act in terms of section 414 which reads 41
Profits chargeable to tax  4
Where a deduction has been allowed in respect of a bad debt or part of debt under the provisions of clause vii of sub section 1 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 charge able 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 exist ence in that year or not
This sub section
refers to the deduction allowed in respect of a bad debt under the provisions of section 361vii of the 1961 Act which reads as follows 36
Other deductions 1
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 the provisions of sub section 2 the amount of any debt or part thereof which is estab lished to have become a bad debt in the previous year 211 Significantly sub section 4 of section 41 of the 1961 Act specifically states that tax is attracted whether or not the business or profession in respect of which the deductions had been allowed continued to be in existence in the year of receipt
This is a fundamental deviation from the earlier provision contained in section 102xi of the 1922 Act
Furthermore sub section 4 of section 41 specifically says that the deductions should have been allowed in respect of a bad debt under the provisions of section 361vii in order to attract section 414
The assessee therefore contends that the relevant provisions of the two enactments are not in pari materia and what has been allowed as a deduction in terms of section 102xi of the 1922 Act cannot be brought to tax under section 414 of the 1961 Act
Any order made under section 102xi of the 1922 Act under which a debt was written off would not attract tax on recovery of the whole or part of such amount unless the business itself continued to exist at the time of the recovery
Furthermore the assessee contends that sub section 4 of section 41 of the 1961 Act is at tracted only where the bad debt was written off in terms of section 361vii of that Act and not in terms of section 102xi of the 1922 Act the provisions of which are not in pari materia with either section 361vii or section 414
Rejecting the contentions of the assessee the High Court held that there was no inconsistency between the relevant provisions of the two enactments and that section 24 of the was attracted as a result of which the order in terms of which the amounts had been written off was deemed to have been made under the re enacted provisions as contained in section 361vii and consequently the amounts recovered on any such debt were chargeable under section 414
Section 25 of the  in so far as it is material
reads 24
Continuation of orders etc issued under enactments repealed and re enacted Where any Central Act or Regulation is after the commencement of this Act repealed and re enacted with or without modification then unless it is otherwise expressly provided any appointment notification order scheme rule form or byelaw 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 212 the provisions so re enacted unless and until it is super seded by any appointment notification order scheme rule form or bye law made or issued under the provisions so re enacted   The effect of section 24 of the  in so far as it is material is that where the re pealed and re enacted provisions are not inconsistent with each other any order made under the repealed provisions is deemed to be an order made under the reenacted provisions
The question therefore is whether the provisions of the repealed section 102xi under which the bad debts were written off as irrecoverable in the books of the assessee are in terms re enacted by the repealing Act
A comparative table furnished i
The Law and Practice of Income Tax Kanga and Palkiwala Seventh Edition Volume II shows that section 102xi of the 1922 Act is equivalent to sections 361vii 362 and 414 of the 196 1 Act
The repealed section 102xi is thus a composite section containing the ingredients of the re enancted sections 361vii 362 and 414
Consequently when a debt is written off by an order in terms of section 102xi of the 1922 Act the Income Tax Officer exercises the same power as he would have exercised on the enactment of section 361vii of the 1961 Act
These two provisions are therefore consistent with each other
Section 361vii is subject to the provisions of sub section 2 of that section
Therefore both sections 36Ivii and 362 of the 1961 Act being two of the ingredients of section 102xi of the 1922 Act must be read together with reference to an order under which debts had been written off
Accordingly in the light of section 24 of the  the relevant order made under section 102xi of the 1922 Act with reference to which the debt in question had been written off is deemed to be an order made under section 361vii of the 1961 Act and such order is what is contemplated under section 414 of that Act
Any amount which is recovered on any such debt is attracted by the provisions of section 414 of the 1961 Act and is therefore chargeable to tax in terms of that sub section to the extent of the excess  specified therein
The contentions of the assessee thus fail and the appeals are accordingly dismissed
No order as to costs
PSS Appeals dismissed


Summary:
The appellant a tenant claimed protection of the Jammu and Kashmir Houses and Shops Rent Control Act 1966
The courts below disallowed the claim on the ground that clause iii of sub section 3 of Section 1 read with the Expla nation was attracted in respect of the appellant
The appellant challenged the validity of clause iii of sub section 3 of Section 1 of the Jammu and Kashmir Houses and Shops Rent Control Act 1966 before the High Court on the ground that it violated Article 14 of the Constitution
The High Court following its earlier decision in the J  K Bank Lid
vs State of J  K  Another AIR1987 J  K 18 upheld validity of the clause
In the appeal before this Court the appellant tenant contended i that the clause was discriminatory and arbi trary because it drew an artificial distinction between tenants on the basis of their income in that while those tenants earning net income below Rs40000 per annum were protected by the beneficial provisions of the Act those with annual net income in excess of the statutory limit of Rs40000 were unreasonably and unfairly denied the protec tion and this statutory discrimination placed them at the mercy of the landlords who could easily evict them by recourse to the far less restrictive provisions of the Transfer of 219 Property Act 1882 and on the strength of their agreements of lease ii that the clause did not take into account the nature of the building or the need and income of the land lord or any other factor and withheld or extended protection solely on the financial capacity of the tenant which could vary from year to year depending upon the nature of his business and other factors thus exposing the tenant to eviction when the business was prosperous but protecting him when the business declined and income fell iii that income was not a clear and precise concept limiting it to net income did not make it clearer and the Act did not indicate the permissible deductions for arriving at the net and iv that the Section was invalid because it was too broad or vague and any classification based on such vague differentia was unintelligible and therefore viola tive of Article 14 and in any view the classification sought to be made between persons falling on either side of the specified income had no reasonable relation to the object sought to be achieved by the statute
Dismissing the above appeal and another similar appeal Civil Appeal No 1370 of 1987 this Court HELD 11 The object of the Jammu and Kashmir Houses and Shops Rent Control Act 1966 is undoubtedly to protect the weaker section of tenants from unreasonable eviction and unfair rent
At the same time the legislature did not desire to discourage persons from constructing buildings
Thus while protection is afforded to deserving tenants construction of new buildings is encouraged by exempting buildings occupied by richer classes of tenants from the provisions of the Act
While a building is covered by the Act when occupied by a tenant whose annual net income is less than the specified amount the protection is withheld when the same building is occupied by a richer tenant whose annual net income is higher than the specified amount
Where a building is occupied by more than one tenant the applica bility of the Act to each of them would depend upon his net income
It is the tenant that the legislature intends to protect and not the landlord or his building
The test adopted by the legislature for this purpose is with refer ence to the tenant s net income whether accruing inside or outside the State as on the date of the landlord s applica tion for eviction as well as on the date of the decree for eviction
224B E 12 The legislative object is therefore to protect tenants who are economically weaker in comparison to those affluent tenants falling outside the specified limit of income and at the same time to encourage construction of new buildings which will result in better availability of 220 accommodation employment opportunity and economic prosperi ty
This is a reasonable classification which does not suffer from the vice of being too vague or broad
224E F 13 Classification based on income is well known to law
Such classification has a reasonable relation to the twin legislative object of protecting economically weaker tenants and encouraging new constructions
There is nothing unrea sonable or irrational or unworkable or vague or unfair or unjust in the classification adopted by Section 13iii of the Act
224F 22SD 14 The legislature in its wisdom is presumed to under stand and appreciate correctly the problems of the State and the needs of the people made manifest by experience
Absent blatant disregard of constitutional provisions legislative innovation by social and economic experimentation must be permitted to continue without judicial interference
225B The J  K Bank Ltd vs State of J  K  Another AIR 1987 J  K 18 approved
Rattan Arya  Others vs State of Tamil Nadu  Another  and Motor General Traders  Another vs State of Andhra Pradesh  Others   distin guished
Kerala Hotel  Restaurant Association  Ors
vs State of Kerala  Ors 1990 1 JT SC 324 relied on
Krishna Dalmia vs Shri Justice SR Tendolkar  Others   referred to 2
There is no lack of clarity in the concept of in come or net income
Income is money or other benefit peri odically received
It is profit or revenue and not capital
It is a gain derived from capital or labour or both
Net income is income obtained after deducting all expenses incurred for the purpose of earning the income
It is income minus operating expenses
The concept of net income is what it is ordinarily understood to be in common parlance and not necessarily limited by the technicalities of any fiscal enactment
224G H Banarasi Das vs Jagdish Raj Kohli AIR 1960 J  K 5
re ferred to