In our view the decisions relied upon by Shri K. Srinivasa Murthy, the learned counsel for the appellants, already referred to above, are not any assistance to the appellants' case, as in all those cases the identity of the commodity, even after conversion and processing remained the same.


Brooke Bond India Ltd. vs Union Of India And Ors. on 24 September, 1982

63. In Commissioner of Sales Tax v. Harbilas Rai (1968) (21 S.T.C. 17) (S.C.) it was found that by grinding of wheat into flour, no new commodity emerged. In Tungabhadra Industries case . Their Lordships of the Supreme Court considered the question whether hydrogenated groundnut oil commonly known as Vanaspati, was groundnut oil. The Supreme Court held that there was no change in the essential nature of the groundnut oil and it cannot be said that the refined groundnut oil, Vanaspati, was not groundnut oil. In Lt. Governor, Delhi v. Ganesh Flour Mills Co. Ltd. it was held by the Supreme Court that no new product was manufactured. In South Bihar Sugar Mills v. Union of India , the Supreme Court held that the transformation was not such so as to result in the emergence of a different article having a distinctive name, characteristic or use. Similar finding was given in Union of India v. Delhi Cloth and General Mills . In Deputy Commissioner of Sales Tax v. Pio Food Packers (46 S.T.C. 63) (S.C.) = 1980 ELT 343, the Supreme Court held that the pine-apple fruit remained the same even after washing and removing inedible portion, the end crown, the skin and the inner core, with the addition of sugar and that there was no change in the commodity. Similarly in Chowgule and Co. Pvt. Ltd. v. Union of India (47 S.T.C. 124), the Supreme Court held that there was no manufacturing process. In the case of State of Maharashtra v. C. P. Manganese Ore , the Supreme Court held that no new commodity was produced in the process and that the mere giving of a new name by the seller to what is really the same product is not the manufacture of a new product. In the case of the State of Gujarat


the same product is not the manufacture of a new product. In the case of the State of Gujarat v. Sukharam Jagannath (50 S.T.C. 76), it was found, as a matter of fact that the constituent articles composing the two varieties of pan-masala retained their original form and that the substantial identity of those articles continued. Thus in almost all the cases relied upon by the learned counsel for the appellants the original commodity has not lost it original identity.


In our view, on the facts, each of the above cases relied upon by Shri K. Srinivasa Murthy, the learned counsel for the appellants, has been rightly decided and there is no conflict as such with the decisions rendered by the Supreme Court relied upon by Shri Upendralal Waghray, Counsel for the Central Government discussed hereunder.


64. In Anwarkhan Mehboob Co. v. State of Bombay , the Supreme Court held that the conversion of raw tobacco into bidi pattis by removing stem and dust, which, in turn, was required for the manufacture of bidis, emerge into a commercially different commodity. In the case of Hajee Abdul Shukoor & Co. , the tanning of raw hides and skins was held as a manufacturing process resulting in the production of different commercial commodities. In the case of Swasthik Tobacco Factory (17 S.T.C. 316) (S.C.), the Supreme Court held that the conversion of raw tobacco into chewing tobacco was a manufacturing process resulting in the production of a substantially different commercial commodity. In the case of Ganesh Trading Company (32 S.T.C. 623) (S.C.) and also in the case of Raghurama Shetty (47 S.T.C. 369), the Supreme Court held that paddy and rice are two distinct commodities and that the milling of paddy involves a manufacturing process. In Devgun Iron and Steel Rolling Mills (12 S.T.C. 590), the Punjab High Court held that the process of steel rolling into rolled steel sections was the manufacturing process and the outcome is a different and new commodity. Similarly in the case of Devidas Gopal Krishnan (20 S.T.C. 430), the Supreme Court held that the iron scrap when converted into rolled steel, it is a manufacturing process, resulting in a new marketable commodity. In the cases of Chennakesavulu (47 S.T.C. 403), and Bapalal and Co. (49 S.T.C. 20), melting of old silver jewellery and making into new silver jewellery was held to be a manufacturing process producing a different commercial commodity. In the case of State of Punjab v. Chandulal , it was held by the Supreme Court that conversion of unginned cotton into ginned cotton


, it was held by the Supreme Court that conversion of unginned cotton into ginned cotton by a mechanical process was a manufacturing process, resulting in the production of two distinct commercial goods. In the cases of Imperial Fertiliser (31 S.T.C. 390) and the State of Tamilnadu v. Rallis India Ltd. (34 S.T.C. 532), it was held by the High Court of Madras that the mixture of chemical fertilisers and the resultant product were different commercial commodities. In Pyarelal Malhotra's case (37 S.T.C. 319) (S.C.) = 1983 ELT 1582, conversion of scrap iron ingots into rolled steel was held by the Supreme Court to be a process of manufacture resulting in production of a different commodity. Similarly in the case of Shaw Wallace (37 S.T.C. 523) (S.C.), the Supreme Court relying upon Imperial Fertiliser case held that the preparation of fertiliser mixture involved manufacturing process resulting in production of a new commodity different from the ingredients composed for the mixture. In the case of Metro Readywear Co. v. Collector of Customs (1978 II Excise Law Times, p. J 520), the Kerala High Court held that the ironing of stitched brassieres using electric iron to be a manufacturing process involving a transformation in the commercial identity of the article. In the case of Union of India v. Ramlal Mansukharai , the process of melting the metals and mixing them together was held by the Supreme Court as a manufacturing process, resulting in the production of a new commercial commodity.


Relying upon the ratio decided in these cases and applying the test laid down therein and on a consideration of all the facts and circumstances of the case we hold that the process adopted by the appellants of roasting and grinding coffee seeds and Chicory roots by the mechanical process involving consumption of powder and then mixing the powders thus obtained from coffee and chicory by mechanical process involving consumption of power constitute the process of manufacture as defined in Section 2(f) of the Central Excises and Salt Act, 1944 and further hold that the product thus obtained known as "Coffee-Chicory Blend" and otherwise known as "French Coffee" in the business market is a distinct commercial commodity falls under Item No. 68 of the First Schedule and hence liable to levy of excise duty in the manner taxed by the Department. We further hold that the blend or mixture called "French Coffee" differs in identity from the two ingredients constituting the mixture. The new product commercially known as "French Coffee" is undoubtedly an article different in characteristic, use, colour, odour and flavour from pure coffee powder.


65. It is next contended by the learned counsel for the appellants, Shri K. Srinivasa Murthy, that since the appellants would be exposed to double taxation both on coffee and also the mixture of "Coffee and Chicory" this court should hold that the levy in question is impermissible as "Coffee" and the mixture of "Coffee and Chicory" are not different commercial commodities. We have already held that the mixture of "Coffee and Chicory" commercially known as "French Coffee" is a distinct commercial commodity and it is different from "Coffee". In fact in this case there is no double taxation on the same commodity. A similar contention was rejected by the Supreme Court in the case of Babu Ram Jagdish Kumar (44 S.T.C. 159) (S.C.) thus : "We may at this stage refer to one other subsidiary argument urged on behalf of the appellants. It is argued that because paddy and rice are not different kinds of goods but one and the same, the inclusion of both paddy and rice in Schedule C to the Act would amount to imposition of double taxation under the Act. There is no merit in this contention also because the assumption that paddy and rice are one and the same is erroneous. In Ganesh Trading Co., Karnal v. State of Haryana arising under the Act, this court has held that although rice is produced out of paddy, it is not true to say that paddy continued to be paddy even after dehusking; that rice and paddy are two different things in ordinary parlance and, therefore, when paddy is dehusked and rice produced, there is a change in the identity of the goods".


66. The principle laid down in this case was relied upon by the Supreme Court in the later case in State of Karnataka v. Raghurama Shetty (47 S.T.C. 369) (S.C.). In the instant case we cannot accept the contention raised by Shri K. Srinivasa Murthy, the learned counsel for the appellants that "Coffee" and "French Coffee" are not different kinds of goods, but one and the same. We have already held above that although the mixture of "Coffee and Chicory" is called "French Coffee", the resultant product does not continue to be coffee and that "Coffee" and "French Coffee" are two different goods in commercial circles and that there is a change in the identity of the goods.


67. In Alladi Venkateswarlu v. Government of A.P. (41 S.T.C. 394), Beg, C.J. observed thus : "It may be that an item may be taxed once as raw material and after it is manufactured and converted into separately taxable goods, taxed again as another taxable item altogether. But in such cases, the identity of the goods sold would be deemed to be different even though the raw materials may have been taxed already in a different form earlier. The question, therefore, before us is whether rice which is obtained form paddy already taxed under Item No. 8 of the Second Schedule ceased to be "rice" falling prima facie under Item No 66B as "rice" on which tax was already paid when it was in the from of paddy ?..... It is clear that there is a distinction between "Paddy" as found in Item No. 8 of the Second Schedule and "Rice", as mentioned in Item No. 66 of the First Schedule. Apparently, the removal of the husk makes this difference...... The "rice" in husk is "paddy". When it is removed from husk the husk and rice become separately taxable".
 Applying the principles laid down in the aforementioned decisions, we hold that there is no double taxation in the instant case, in view of our finding that "Coffee-Chicory Mixture" is a distinct commercial commodity from "Pure Coffee".


68. The learned counsel for the appellants Shri K. Srinivasa Murthy lastly contended that the "Coffee-Chicory Mixture" being an article of food is exempt from excise duty by virtue of exemption Notification No. 55/75-C.E, dated 1-3-1975 issued by the Central Government exempting certain goods specified in the Schedule annexed thereto and falling under Item No. 68 of the First Schedule. His argument is based on the premises that the "Coffee-Chicory Mixture" continues to be "Coffee" and is as much as the item "Coffee" falls as Item No. 2 under the general heading "Food" of the First Schedule. According to him if the "Coffee-Chicory Mixture" is held as an item of food it attracts the aforementioned exemption notification, which exempts all kinds of "Food Products" and "Food Preparations" (vide the notification extracted above). Presumably his argument is that if "Coffee" is food, then blend of Coffee and Chicory has to be treated as food, in which case the "Coffee-Chicory Blend" attracts the aforementioned exemption notification and that this court need not go into the question whether any manufacturing process was adopted in the process of mixing of "Coffee and Chicory" and whether such process of mixing emerges into a distinct commercial goods. In support of his proposition that coffee is food and so also Coffee-Chicory Mixture, he relied upon number of foreign texts and authorities dealing with the items of expression "Food", "Coffee" "Coffee Products" and "Coffee-Chicory Mixture". Whereas Shri Upendarlal Waghray, the learned counsel for the Central Government contended that merely because the item "coffee" happens to be one of the first three items falling under the title and heading "Food" in the First Schedule, the item "Coffee" cannot be treated as "Food


heading "Food" in the First Schedule, the item "Coffee" cannot be treated as "Food Product" or "Food Preparation", much less the "Coffee-Chicory Mixture", which is a distinct commercial commodity from "Coffee" in view of the specific definition of "Coffee" in Item No. 2 of the First Schedule and that in any case the exemption notification is not applicable to goods "Coffee-Chicory Mixture".


69. Shri K. Srinivasa Murthy, the learned counsel for the appellants relied upon certain passages in Corpus Juris Secundum, Vol. X 36 under the heading "Food" in General : which reads thus :
 "Except as used in some statutes, the word "Food" includes that which is drunk, as well as that which is eaten, for nourishment, as used in statutes. It may include food for animals as well as food for human beings, although in common use the word "feed" is employed when referring to articles fed to animals."
 "In the general sense of the term, food is "that which is eaten or drunk for nourishment". It includes lard, milk, milk chocolate, cheese, coffee, condiments, confectionary, popcorn, and oleo oil, but not talc, tobacco, whisky, or saccharin. What constitutes food within the meaning of statutes making it an offence to mingle poisons with food is considered in the C.J.s. title poisons."
 "In food statues the term usually includes all articles used for food or drink by man, or by man and other animals whether sample, mixed, or compound. In construing certain statutes, however, it has been held that the term 'food' does not include a beverage or drink; and it is also held that, while the usual pure food statute which expressly provides that the term "food" shall include articles used for drink would undoubtedly cover the ordinary beverage, it does not comprehend as article, such whisky, which at the time is outlawed as a beverage. A legislative body may provide its own definition of food, under a law which it enacts, and, when it does so, that definition must necessarily control regardless of dictionary definitions, or even though it goes beyond the ordinary meaning of the term."


70. In paragraph 1093 in volume 18 of the 'Halsbury's Laws of England' (4th Edition), 'Coffee' and 'Coffee Products' are mentioned under the general heading "Food, Dairies and Slaughter-House", and under the sub-heading 'food generally'. Coffee-Chicory blend also is mentioned in that paragraph. Coffee and Chicory product has been mentioned in the context of the law of food adulteration and the Coffee and Coffee-product Regulations, 1967, which was in force in India.
 71. Justice Bose of Supreme Court happened to consider the question as to what is and what is not food in the case reported in State of Bombay v. Virkumar , while dealing with the meaning and scope of the expression 'Food stuff' as defined in Clause 3 of the Spices (Forward Contracts Prohibition) Order, 1944 read with Section 2(a) of the Essential Supplies (Temporary Powers) Act, 1946, which reads thus :
 "Much learned judicial thought has been expended upon this problem - what is and what not food and what is and what is not a food stuff : and the only conclusion I can draw from a careful consideration of all the available material is that the term 'food stuff' is ambiguous. In one sense it has a narrow meaning and is limited to articles which are eaten as food for purposes of nutrition and nourishment and so would exclude condiments and spices such as yeast, salt, pepper, baking powder and turmeric. In a wider sense, it includes everything that goes into the preparation of food proper (as understood in the narrow sense) to make it more palatable and digestible. In my opinion, the problem posed cannot be answered in the abstract and must be viewed in relation to its background and context. But before I dilate on this, I will examine the dictionary meaning of the words."


"The Oxford English Dictionary defines 'food-stuff' as follows : "that which is taken into the system to maintain life and growth and to supply waste of tissue". In Webster's international Dictionary 'food' is defined as -
 "nutritive material absorbed or taken into the body of an organism which serve, for purposes of growth, work or repair and for the maintenance of the vital process".
 "Then follows this explanation :
 "Animals differ greatly from plants in their nutritive processes and require in addition to certain organic substances (water, salts etc.) and organic substances of unknown composition (vitamins) not 'ordinarily' classed as foods ('though absolutely indispensable of life, and contained in greater or less quantities in the substances eaten complex organic substances which fall into three principal groups, Proteins, Carbohydrates and Fats."
 "Next is given a special definition for legal purposes namely -
 "As used in laws prohibiting adulteration etc., 'food' is generally held to mean any article used as food or drink by man, whether simple, mixed or compound, including adjuncts such as condiments etc., and often excluding drugs and natural water".
 The definition given of 'food stuff' is :
 "1. Anything used as food.
 2. Any substance of food value as protein, fat etc., entering into the composition of a food."
 "It will be seen from these definitions that "Food stuff" has no special meaning of its own. It merely carries us back to the definition of 'food' because "food stuff" is anything which is used as "food".


"So far as "food" is concerned, it can be used in a wide as well as narrow sense and, in my opinion, much must depend upon the context and background. Even in a popular sense, when one asks another, "Have you had your food ?", one means the composite preparations which normally go to constitute a meal-curry and rice, sweet-meats, pudding, cooked vegetables and so forth. One does not usually think separately of the different preparations which enter into their making, of the various condiments and spices and vitamins, any more than one would think of separating in his mind the purely nutritive elements of what is eaten from their non-nutritive adjuncts. So also, looked at from another point of view, the various adjuncts of what I may term food proper which enter into its preparation for human consumption in order to make it palatable and nutritive, can hardly be separated from the purely nutritive elements if the effect of their absence would be to render the particular commodity in its finished state unsavoury and indigestible to a whole class of persons whose stomachs are accustomed to a more spicely prepared product.


The proof of the pudding is, as it were, in the eating and if the effect of eating what would otherwise be palatable and digestible and, therefore, nutritive is to bring on indigestion to a stomach unaccustomed to such unspiced fare, the answer must, I think, be that however nutritive a product may be in one from it can scarcely be classed as nutritive if the only result of eating it is to produce the opposite effect; and if the essence of the definition is the nutritive element, then the commodity in question must cease to be food, within the strict meaning of the definition to that particular class of persons, without the addition of the spices which make it nutritive. Put more colloquially, "one man's food is another man's poison" I refer to this not for the sake of splitting hairs but to show the undesirability of such a mode of approach. The problem must I think, be solved in a common sense way."
 72. His Lordship further observed thus : "Now the comparison of one Act with another is dangerous, especially when the Act used for comparison is an English Act and a war-time measure, and I have no intention of falling into that error. I am concerned herewith the Act before me and must interpret its provisions uninfluenced by expressions, however similar, used in other Acts. I have referred to the case discussed above, not for purposes of comparison but to show that the terms 'food' and 'food-stuffs' can be used in both a wide and a narrow sense and that the circumstances and background can alone determine which is proper in any given case".
 73. The Supreme Court has laid down guidelines as to the use of Foreign Decisions and Laws, while considering the provisions of the Indian Statutes. The Supreme Court made the following observations in various cases :


"No assistance can be derived from decisions that deal with other laws made in other countries to deal with situations that do not necessarily arise in India". [Pratap Singh v. Shri Krishna Gupta .
 "While dealing with the problem of construing a specific statutory provision it would be unreasonable to invoke the assistance of English decisions dealing with the statutory provisions contained in English law. Where there is a positive enactment of the Indian Legislature the proper course is to examine the language of that statute and to ascertain its proper meaning uninfluenced by any consideration derived from the previous state of the law or of the English law upon which it may be in [State of West Bengal v. B. K. Mondal and Sons .
 "Where there is a Code and where words have been designedly chosen in respect of a subject-matter, it is nor proper to first go into the English cases on the subject without considering the words of the statute." [Hari Har Prasad v. State of Bihar, .
 74. Now turning to Central Excises and Salt Act, 1944, with which we are concerned it will be necessary for us to advert to the provisions contained therein. The word "food" has not been defined in the Act and so also the expressions "Food Products" and "Food Preparations" Sri K. Srinivasa Murthy placed his main reliance on the heading and title "Food in which the item of excisable goods falls as item No. 2, among the first three items of the First Schedule.
 The Supreme Court as regards the use of chapter Headings and Marginal Notes observed thus :
 "Title of a Chapter cannot be legitimately used to restrict the plain terms of an enactment." [C.I.T. v. Ahmedbhai Umarbhai & Co. .


"The Headings prefixed to sections or sets of sections in some modern statutes are regarded as preambles to those sections. They cannot control the plain words of the statute but they may explain ambiguous words. If there is any doubt in the interpretation of the words in the section, the heading certainly helps to resolve that doubt." (Bhinka v. Charan Singh, .
 "It is true that the marginal note cannot control interpretation of words of a section particularly when language of the section is clear and unambiguous." (Western India Theatres Ltd. v. Municipal Corporation of City of Poona, .
 "If the words of the section of an Act admit of a reasonable doubt, the title or heading of the chapter or group of sections may be looked to for interpreting the section. But, although such heading may be looked for interpreting a section, the words of which admit of any reasonable doubt, it cannot be taken to restrict the plain terms of the section. It does not also prevail, where the intention of the legislature can be gathered by reference to other sections. The heading of a chapter may be referred to in order to determine the sense of any doubtful expression in a section ranged under it. But it cannot control unambiguous expressions."


"It has repeatedly been said by the Supreme Court that it is not safe to pronounce on the provisions of one Act with reference to decisions dealing with other Acts, which may not be in pari materi (Hari Khemu Gawali v. Deputy Commissioner of Police, Bombay, . It is no sound principle of construction to interpret expressions used in one Act with reference to their use in another Act. The meaning of words and expressions used in an Act must take their colour from the context in which they appear. (Ram Narain v. State of Uttar Pradesh, . It is the part of judicial prudence to decide an issue arising under a specific statute by confining the focus to that statutory compass as far as possible. The diffusion into wider jurisprudential areas is fraught with unwitting conflict or confusion (State of Madhya Pradesh v. Orient Paper Mills Ltd., ."
 75. In D. N. Banerjee v. P. R. Mukherjee the Supreme Court said : "Though the definition may be more or less the same in two different statutes, still the objects to be achieved not only as set out in the preamble but also as gatherable from the antecedent history of the legislation may be widely different. The same words may mean one thing in one context and another in a different context. This is the reason why decision on the meaning of a particular words or collection of words found in other statutes are scarcely of much value when we have to deal with a specific statute of our own; they may be helpful but they cannot be taken as guides or precedents."


76. In State of Bihar v. Ram Naresh, the Supreme Court held that there was no reason for limiting the connotation and significance of the words used in one context with reference to the meaning given to those words used in other sections in another context. They observed that words must be considered with regard to the particular context in which they were used and with regard to the scheme and purpose of the provision under consideration.
 Thus, if a word has a certain meaning in one statute or if a situation is followed by certain consequences under one statute, it does not follow that the word will have the same meaning in another statute or that the situation will be followed by the same consequences under the other statute. Regard must be had to the context, the intention of the Legislature and the object sought to be achieved by the two statutes. In construing a particular statute the provisions of other contemporaneous statute in existence cannot be decisive or conclusive.


77. In our opinion, as laid down by the Supreme Court in the aforementioned cases, the aid of English and American concepts, laws and precedents in the interpretation of the Indian Laws, words and expressions used therein, to know always without its dangers and we have, therefore, to be relied upon with some caution, if not without hesitation because of difference in the nature of those laws, concepts and definitions. In the present case we are concerned with the interpretation of words and expressions "Coffee", "Food", "Food product", and "Food preparation" used in the Central Excises and Salt Act, 1944, which is a taxing statute. Now there is one cardinal rule of interpretation which is always to be borne in mind, while interpreting entries and expressions in a tax legislation and it is that the words used the entries must be construed not in any technical sense, not from the scientific point of view but as understood in the common parlance. We must give the words used by the legislature the popular sense meaning "That sense which people conversant with the subject-matter with which the statute is dealing would attribute to it". The words "Coffee", "Food" and "Food Products" and "Food preparations" must, therefore, be interpreted according to ordinary parlance and must be given a meaning which people conversant with these commodities would ascribe to them.


78. The question in this appeal thus revolves on the interpretation to be placed on the words and expressions "Coffee", "Food", "Food products" and "Food preparations", taking into consideration the scheme of the items of the First Schedule. In Union of India v. G. W. F. Mills , the Supreme Court held that the well-known rule in interpreting items in statutes like the Central Excises and Salt Act, 1944, as we are concerned with is, that resort should be had not to the scientific or the technical meaning of such terms, but to their popular meaning or the meaning attached to them by those dealing in them, that is to say to their commercial sense.


79. As already stated above there are 68 items of goods in the First Schedule, out of them 67 items deal with distinct items of excisable goods and whereas the 68th item is residuary item and it applies to all other excisable goods not elsewhere specified in the First Schedule. The scheme of the items enumerated in the First Schedule of the Central Excises and Salt Act, 1944 is such that a particular article cannot come under two items of the Schedule for the purpose of excise duty. Item No. 68 of the First Schedule applies to only all other excisable goods which are not specified in item Nos. 1 to 67. In other words any item which falls under any of the item Nos. 1 to 67 shall not fall under Item No. 68. Under Rule 8(1) of the Central Excise Rules, 1944, the Central Government may, from time to time, by notification in the Official Gazette, exempt subject to such conditions as may be specified in the notification, any excisable goods from the whole or any part of duty leviable on such goods. Item No. 2 of the First Schedule is "Coffee" including Coffee, cured and coffee commercially known as "Instant Coffee". Each of these two catagories of Coffee is liable to excise duty at different rates as shown in the third column against each category of coffee. No notification has been issued by the Central Government under Rule 8(1) of the Rules exempting any product or preparation of either coffee cured or instant coffee, which is covered by item No. 2 of the First Schedule. The categories of 'Coffee' has been defined in item No. 2 itself hence the term 'coffee' shall have the restricted meaning assigned to it in item No. 2 itself and no aid can be taken from the definition and content of the expression "Coffee" in any other statute, or Dictionary or case law under


definition and content of the expression "Coffee" in any other statute, or Dictionary or case law under other Acts. Item No. 1B deals with "Prepared or preserved foods put up in unit containers and ordinarily intended for sale including preparations of vegetables, fruit, animal blood, fish, crustaceans or molluscs, not elsewhere specified". Item No. 1C deals with "Food products, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power, the following, namely :- (1) Biscuits, (2) Butter, whether pasteurised or not, and (3) pasteurised or processed cheese".


80. Item No. 1C is restricted only to the three kinds of mechanically manufactured "food products" mentioned therein. It really the intention of the Legislature was to consider the goods "Coffee" or "Instant Coffee" or "Coffee-chicory Mixture" manufactured with the aid of power, as "food" or "Food product", then these commodities would have been under Item 1C and not as a separate item under Item No. 2 and that too in a very restricted manner and sense. Evidently the intention of the Legislature is to treat each of the goods "Coffee" covered by Item No. 2, and "food" and "food products" covered by Item Nos. 1B and 1C respectively as separate and distinct commercial goods. If any food prouct other than the articles enumerated in Item No. 1C are to be exempted by a notification in the Official Gazette by the Central Government under Rule 8(1) of the Rules, it can be possible only by issuing a notification under item No. 68. The fact that item No. 68 deals with only other excisable goods not specified in item Nos. 1 to 67, clearly goes to show that 'Coffee' covered by item No. 2 and the food products enumerated in item No. 1C are distinct goods from the excisable goods to be covered by item No. 68. The exemption notification relied upon by the learned counsel for the appellants clearly refer to the excisable goods of the description specified in the Schedule annexed thereto and falling under item No 68 but exempt from the whole of the excise duty leviable thereon. In view of the specific mention in the exemption notification that "Food products" and "Food Preparations" falling under item No. 68 alone are exempt from the whole of the excisable duty leviable thereon, clearly disclose the intention of the Legislature that


the whole of the excisable duty leviable thereon, clearly disclose the intention of the Legislature that those items mentioned in the exemption notification including the "Food products", and "Food preparations" are distinct commercial and excisable goods from item Nos. 1 to 67 including item No. 2 "Coffee", item No. 1B "Food" and item No. 1C "Food products" as described therein. The fact that the item "Coffee" is covered by a specific item No. 2 of the First Schedule, the possibility of coffee or its products falling under the aforementioned exemption notification issued under Item No. 68 of the First Schedule, does not at all arise. Further the specific language used in the exemption notification namely "goods" of the description specified in the Schedule annexed hereto, and falling under Item No. 68, are exempt from the whole of the duty of excise leviable thereon" and naming one of the goods as "all kinds of food products and food preparations", cuts at the very root of the theory of the learned counsel for the appellants that "Coffee" is an article of food and that "Food-products" and "Food preparations" mentioned in the exemption notification include "Coffee" or "Coffee-chicory Mixture". Thus the commodity "Coffee" which falls under specific Item No. 2 cannot fall under the residuary Item No. 68, nor it can be interpreted as to include "any other goods" declared as excisable goods under Item No. 68, not any other excisable goods which are exempted from the duty of excise by a special notification. As a logical corollary, if the article of "Coffee" cannot fall under Item No. 68 or under any item of "food product" or "Food preparation" declared as excisable goods or goods exempted from duty of excise by a special notification, the question of "Coffee-chicory


exempted from duty of excise by a special notification, the question of "Coffee-chicory Mixture" falling under exemption notification issued under Item No. 68 of the First Schedule does not arise. The burden of proof that "Coffee-chicory Mixture" was food or food product or food preparation was on the appellants to be entitled for exemption of 'Coffee-chicory Mixture'. The appellants must show that the goods 'Coffee-chicory Mixture' was covered by the aforementioned exemption notification. The fact that the item 'coffee' covered by Item No. 2 of the First Schedule is distinct from the items mentioned in the exemption notification falling under Item No. 68 of the First Schedule, one has to irresistibly conclude that the goods "Coffee-chicory Mixture" is neither food, nor food product nor food preparation, so as to enable the appellants to claim exemption from excise duty.


81. In this context it has to be borne in mind that the Central Government by another notification No. 179/77-C.E., dated 18-6-77 exempted from the whole of the duty of excise leviable on goods falling under Item No. 68 in or in relation to the manufacture of which no process is ordinarily carried on with the aid of power. We have already noted that in the exemption notification No. 55/75-C.E., dated 1-3-1975, all kinds of food products and food preparations including the other items mentioned therein which fall under Item No. 68 have been exempted from the whole of the duty of excise leviable thereon. These two exemption notification clearly go to show that they cover such excisable goods which are not covered by any of the items 1 to 67 of the First Schedule including coffee and coffee-chicory mixture.
 82. Thus on an integral reading of Item No. 2 relating to coffee, Item No. 1B relating to the food of particular kind mentioned therein, Item No. 1C relating to food products of particular kind mentioned therein, the residuary Item No. 68 of the First Schedule and the exemption notification in question, the Legislative intent is made amply clear namely that it did not want "Coffee" or "Coffee-chicory Mixture" to be treated as "Food" or "Food product" or "Food preparation" and to be exempt from the levy of excise duty under the exemption notification.


83. In the light of the foregoing discussion, we hold that Item "Coffee" is not an article of "Food" and that "Coffee-chicory Mixture" is not an article of "Food product" or "Food preparation" mentioned in the exemption notification issued by the Central Government under Item No. 68 of the First Schedule of Central Excises and Salt Act, 1944. We have already held above that the "Coffee-chicory Mixture" commercially called "French Coffee" is a distinct commercial commodity differing in identity from the two ingredients constituting the mixture and that it falls under Item No. 68 of the First Schedule and hence liable to levy of excise duty in the manner taxed by the Department.
 84. We further hold that the exemption notification in question is neither applicable to the item "Coffee" nor "Coffee-chicory Mixture" and hence the goods "Coffee-chicory Mixture" is liable to excise duty under Item No. 68 of the First Schedule of Central Excises and Salt Act, 1944 as a distinct excisable goods in the manner taxed by the Department.
 85. For these reasons, this Writ Appeal fails and is, accordingly, dismissed with costs. Advocate's fee Rs. 250/-.
 86. On the pronouncement of the judgment, Oral application for leave to appeal to the Supreme Court was made. We are unable to certify that this Writ Appeal involves such substantial questions of law of general importance which would require consideration by the Supreme Court or that it is otherwise a fit case for the grant of leave. Leave is refused.
 87. The learned counsel also requested for stay of the collection of excise duty. We do not think that the circumstances of the case justify the grant of any stay. Stay refused.


Commissioner Of Income-Tax, ... vs Sahney Steel And Press Works Ltd. on 3 November, 1983

JUDGMENT Jeevan Reddy, J.


1. The Income-tax Appellate Tribunal, Hyderabad, has referred the following question for our opinion under s. 256(1) of the I.T. Act, 1961, at the instance of the Revenue :
 "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the amount of Rs. 14,665 received by the assessee from the Government of Andhra Pradesh in the relevant accounting period was not liable to be included in the total income assessable for the assessment year 1974-75 ?"
2. On December 31, 1968, the Government of Andhra Pradesh in Industries Department issued G.O. Ms. No. 1225, providing certain facilities and incentives to entrepreneurs wishing to set up industries in the State with a view to speed up the Industrial development of the State. This G.O. was superseded by G.O. Ms. No. 455, Industries and Commerce Department dated May 3, 1971. The preamble to both the G.Os. is identical, and, therefore, it is sufficient if we notice the reasons for issuance of the said G.Os. as recited in the second G.O. It states :


"Having regard to the slow pace of industrialisation in the State particularly in the private sector and with a view to stimulating rapid industrialisation throughout the State, Government had offered facilities and incentives in the G.O. cited for new industrial under takings. Subsequently, certain issues arising out of the Government or der were considered by the Officers' Committee constituted in G.O. Ms. No. 1226, dated 31st December, 1968. At their meeting held on 16th July, 1969, certain clarifications were considered with regard to these issues. Subsequently, the Director of Industries raised further issues for clarification on certain aspects of the G.O. cited and also of the Officers' meeting."
3. We may set out the relevant portions of the G.O. relevant for the present purpose.
 "2. Keeping in view the points raised by the Director of Industries, the Government issued the following order in suppression of the orders issued in the G.O. cited, with regard to the facilitates and incentives which may be given to industrialists wishing to set up new industries as indicated below :
 (a) Refund of sales tax on raw materials, machinery and finished goods, levied by the State Government subject to a maximum of 10 % of the equity capital paid up in the case of public limited companies and the actual capital in the case of others :
 Explanation. - The ceiling of 10% shall be for the whole period of five years for which this concession is available according to para. 3 and not an annual ceiling.
 (b) Subsidy on power consumed for production to the extent of 10% in the case of medium and large scale industries and 12 1/2% in the case of small scale industries. The concession will not apply to cases where concessional tariffs are allowed by the Electricity Board.


Explanation. - 'Small Scale Industries' referred to above will include all industrial units with a capital investment of not more than Rs. 7.5 lakhs irrespectives a of the number of persons employed. Capital investment for this purpose will be invested in plant and machinery only. In calculating the value of plant and machinery the original price paid by the owner irrespective of whether the plant or machinery are new or second hand will be taken into account.
 This Explanation is subject to such modifications as the Government may from time to time make.
 (c) Exemption from payment of water rate on water drawn from sources not maintained at the cost of Government or any local body;
 (d) Refund of water rate in respect of water drawn from a Government source or from a source maintained by any local body but returned purified to it;
 (e) Liability on account of assessment of land revenue or taxes on land used for establishment of any industry, shall be limited to the amount of such taxes payable immediately before the land is so used.
 (f) The following additional incentives will be allowed to new industrial units set up in the ayacut areas of Nagarjunasagar, Pochampad and K.C. Canal in the Ramagundam-Kothagudem areas and in the following eight backward districts :
 (1) Nalgonda, (2) Medak, (3) Mahaboobnagar, (4) Karimnagar, (5) Warangal, (6) Anantapur, (7) Khammam, and (8) Chittor, and such other districts as may, from time to time, be notified by the Planning Commission as backward districts for the purpose of grant of incentives for industrialisation :


(i) Sale or lease of Government land at concessional rates; and (ii) grant of financial assistance on a priority basis by the State Financing Institutions.
 Explanation. - 'Ayacut areas' mean villages, all or part of the lands of which are included in the ayacut of the irrigation project specified above.
4. The above incentives will be available to all new industrial undertaking which commenced production on or after 1st January, 1969, with investment capital (excluding working capital) not exceeding Rs. 5 cores. The incentives under items (a) to (f) in para. 2 above will be allowed in each case for a period of five years from the date of commencement of production. The concessions will also be available for subsequent expansions (50% and above) of existing capacities provided, in each case, the expansion is located in a city or town or Panchayat areas, other than that in which the existing unit is located."
5. The assessee - Sahney Steel and Press Works Ltd. - set up a factory at Patancheru in Medak District, which went into production in the year 1973. The assessee maintains its accounts according to the calendar year. It was, therefore, entitled to the benefits of the said G.O. in the calendar year 1973, which means the assessment year 1974-75. In the said accounting year, the assessee obtained refund of the following three items totaling Rs. 14,665.70 in terms of G. O. Ms. No. 455. The three items are :
 Rs.


(i) Refund of sales tax on purchase of    5,839.93
machines during 1971-72
(ii) Refund of sales tax on purchases       390.79
of raw materials during the year 1971-72
(iii) Refund of sales tax paid on sale     8,423.98
of finished goods during the year 1971-72


6. The ITO, while making the assessment for the year 1974-75, included the said amount in the assessable income of the petition which was confirmed on appeal by the Commissioner of Income-tax (Appeals.) On further appeal, however, the Tribunal upheld the assessee's contention and held that the amount of Rs. 14,665.70, refunded to the petitioner in terms of the said G.O. "did not represent refund of sales tax" but was a development subsidy in the nature of a capital receipt. The Tribunal also held that the said amount cannot be deemed to be the income of the assessee under s. 41(1) either. Reliance was also placed upon a circular (N0.142) of the Central Board of Direct Taxes dated August 1, 1974, issued with respect to "10% central grant of subsidy scheme (1971)", in support of its conclusion. Thereupon the Revenue asked for and obtained this reference.


7. Mr. M. S. N. Murty, the learned standing counsel for the Revenue, contended that items Nos. 2 and 3 comprised in the said refunded amount squarely falls within the four corners of sub-s. (1) of s. 41 and must, therefore, be deemed as income of the assessee for the relevant assessment year. He contended that the Tribunal was in error in holding that the amount refunded to the assessee did not represent refund of sales tax. The counsel contended further that all the three items constitute trading receipts and are, therefore, includible under sub-s. (1) of s. 28. According to him, the receipts are not in the nature of capital receipts in the hands of the assessee but they are receipts of a revenue nature. Counsel also contended that the circular of the Central Board has no application to the facts of the case, nor is it valid and enforceable being inconsistent with the provisions of the Act. On the other hand, Sri. Y. V. Anjaneyulu, the learned counsel for the assessee, submitted in the first instance that none of the three items comprised in the said amount constitute income as understood in the income-tax law, nor do they fall within the four corners of sub-s. (1) of s. 41. Counsel contended that the said amount represents a voluntary contribution unrelated to the character of the assessee, that it is not a return for the capital, skill or labour employed but a bounty given by the State for the specific purpose of development of industry which the assessee is not entitled to use as he pleases. He contended further that the assessee had no right to receive the said amounts, that it was purely out of generosity that the State made the said grant in terms of the G.O. which was issued long prior to the petitioner commencing production. He also submitted that this amount has to be used specifically for the


to the petitioner commencing production. He also submitted that this amount has to be used specifically for the purpose of development which means for the expansion of the unit and cannot be distributed as profits nor can it be used as any other income of the assessee and, hence, is in the nature of a capital receipt.


8. Since it is stated that the decision in this case governs a large number now pending in this court, we have heard both the counsel at quite some length and we are obliged to both of them for the valuable assistance rendered to us.
9. The following questions arise for our decision :
 "(1) Whether the refund of the amount of Rs. 14,665.70 in terms of G.O. Ms. No. 455 represents refund of sales tax paid by the assessee or whether it was a voluntary contribution by the State unrelated to the character of the assessee and whether the said amount constituted income in the hands of the recipient, viz., the assessee ?
 (2) Whether the three items comprised in the said amount or any of them fall within the four corners of section 41(1) ?
 (3) Whether the circular of the Central Board of Direct Taxes applies herein and whether it helps the assessee's case in any manner ?"
10. The first question has four aspects, viz., whether the refund of the said amount was a voluntary contribution, secondly, whether the contribution was unrelated to the character and business of the assessee, thirdly, whether the nature of the receipt is capital or revenue and, lastly, whether it can be called "income" in the hands of the assessee.


I. (i) G.O. Ms. No. 455 is of general application. It was not issued for the purpose of helping this particular assessee. Whoever fulfills the conditions prescribed in the said G.O. is entitled to the facilities and benefits provided by it. In other words, any person satisfying the requirements of the said G.O. was entitled to the facilities and incentives as a matter of right. If in the case of any person, the same were denied, he could well maintain a writ petition or other proceeding to compel the State to extend the said benefits to him in terms of the said G.O. It may be that there is no consideration for the benefits extended thereunder in the common law sense. But it cannot be said that it is an act of generosity on the part of the State. The State is interested in the industrial development of the State; it wants to attract industries to enhance the employment potential, economic prosperity and the income of the State. It is to attract the new entrepreneurs that the Government has come forward with the said incentives. The extension of the said benefits cannot, therefore, be likened or equated to the receipt of funds by the monastery concerned in Rev. Father Prior, Sacred Heart's Monastery v. ITO[1956] 30 ITR 451(Trav-Cochin). In that case, the Sacred Heart's Monastery, a religious institution was in receipt of certain donation from foreign countries for putting up charitable institutions and for other similar purpose. The donations were being sent regularly over a considerably long period. The Department's contention was that, since the monastery was in receipt of these amounts coming in with a certain regularity over a fairly long period, the same must be treated as income of the Monastery. This view was challenged by way of a writ petition in the Kerala High Court. Section 5(3)(iii) of the Cochin Income-tax Act, in so far as it is relevant,


of the Cochin Income-tax Act, in so far as it is relevant, read as follows (at p. 471) :


"Any income of a religious or charitable institution derived from voluntary contributions and applicable solely to religious or charitable purposes."
11. The High Court observed (p. 473) :
 "The mere fact that a particular item of receipt does not come within an exemption clause does not mean that it is assessable income. The primary question is whether it is income at all...... If donations of this kind are assessable income all individuals and bodies other than religious or charitable institutions should be liable to be assessed to income-tax in respect of such income under the Cochin Income-tax Act. We do not think that it will be seriously contended that under the Indian Income-tax Act, donations received by a person for putting up a charitable institution and used for that purpose will be regarded as his income and assessed to income-tax. They are obviously of the nature of gifts and are capital receipts. They do not come within the meaning of the word 'income' as understood in the ordinary language."
12. Then the Division Bench referred to the decision of the Privy Council in CIT v. Shaw Wallace and Co. [1932] 2 Comp Cas 276 and certain other decisions and observed (p. 476) :
 "...... it cannot be contended for a moment that donations received by a person from a few individual on different occasions for putting up a charitable institution and utilised for that purpose will constitute his income. The payments depends entirely on the whim of the donors. There is also no regularity or expected regularity in the payments. It is obvious that receipts of this nature do not constitute 'income' of the recipient."


13. They also observed that the receipts are of a casual and non-recurring nature and that they do not arise from the business or exercise of profession, vocation or occupation of the monastery. We are unable to see that the nature of the receipts in the kerela case and the nature of the receipts concerned herein is the same. In this case, as we have pointed out herein before, the assessee and for that matter any other person setting up an industry in the state of Andhra Pradesh was entitled to the facilities and incentives provided by the said G.O. as a matter of right, which, if denied he could enforce in a court of law. These receipts are also not of the same nature as were received by Rani Amrit Kunwar v. CIT[1946] 14 ITR 561 (All). The Rani concerned in that case was the wife of the ruler of the Kalsia State and the sister of the Maharaja of Nabha State. She was receiving certain amounts towards her maintenance, etc., both from the Kalsia State from Nabha state. The controversy arose about the payment received form Sabha state which were styled as "wardrobe allowance" and included present on certain specified days of festival in each year. Each payment was specifically budgeted for in the annual budget of the Nabha State and the payments were made consecutively over a period of twenty years. The Allahabad High Court held that there was no evidence in the case to show that the payments made by the Nabha State were attributable to any custom, usage or tradition or obligation and there was consequently no origin for the payments which could amount in its nature to a definite source so as to render each payments income and not merely a casual or annual windfall. It was accordingly held that the said payment do not constitute income in the hands of the Rani and were not assessable to income-tax. In that case, though the rani was receiving the said amounts from


assessable to income-tax. In that case, though the rani was receiving the said amounts from the Nabha State regularly, she had no right to the said amounts, which were being made out of pure generosity and which, if stopped, the Rani could not claim as a matter of right nor could she enforce the payment through a court of law.


14. Mr. Y. V. Anjaneyulu, the learned counsel for the assessee, the contended that the said G. O. could be withdrawn at any time by the Government and that neither the assessee nor any other person could compel the Government not to withdraw it. It is true that in para. 8 of G.O.Ms. No. 455, the Government expressly stated :
 "Government, however, reserve the right to withdraw at any time any or all of the concessions mentions above in relation to a class or classes of industries without assigning any reasons."
15. Yet we do not think that this would make any difference to the nature of the payments. The position would be no different if these payments were provided by a statute. A statute too can be repealed or modified or amended by a legislature at any time and no person has a right to compel the legislature not to do so. But that does not mean that so long as the stature is in operation, the person concerned does not have a right to enforce the same. Similarly, the fact that the Government reserved to itself the power to withdraw the G.O. or to amend it, does not mean that so long as the G.O. is in operation, the person concerned do not have a right to enforce the same.


16. A similar question was considered by a Bench of this court in Panyam Cements and Mineral Industries Ltd. v. Addl. CIT [1979] 117 ITR 770. A large number of representations were made by the industrialists in this State submitting that the existing power rates charged by the Andhra Pradesh State Electricity Board, being very high compared to the other states in the country, were adversely affecting their competitive capacity and the growth and expansion of the industries in the state and that the same should be reduced. A committee appointed by the Government to look into the representation recommended that the Government should evolve a scheme of concessional rates for attracting new industries to the state and also to help the existing industries. Accordingly, the Government issued G.O. Ms. No. 678 dated April 27, 1961. The relevant portions of the G.O. extracted in the said decision read as follows (at p. 774) :
 "This committee examined, in all its aspects, the question of making available the supply of power to new industries at concessional rates as a method of stepping up the pace and range of industrial development in Andhra Pradesh. The Committee came to the conclusion that reductions in existing power rates were necessary and, therefore, steps should be taken by the Government to work out a scheme of concessional rates for attracting new industries to the State.
17. As regards the methods of financing to be adopted for the grant of concessional rates, in view of the inability of the Andhra Pradesh Electricity Board to meet the cost involved, the Committee considered that a subsidy should be granted to the Industries Department by the Government to defray the loss of revenue likely to be incurred by the Andhra Pradesh Electricity Board.


18. The Director of Industries and Commerce has reported (in his second letter read above) that the present rates of power supply in Andhra Pradesh (as compared to those obtained for the same loads in neighbouring states like Madras, Mysore and Bombay) have been a contributory cause of the unsatisfactory pae of imdustrial growth in Andhra Pradesh. He has, therfore, urged the grant of concessional rates of power supply to selected categories of medium and large industries on the following basis :
 (i) Power tariff rates in Andhra Pradesh should be brought on a level with those ruling in mysore, Madras and Maharashtra for comparable loads.
 (ii) Concessional power rates should be offered to the following categories of new industries :
 (a) industries for which power is an important cost factor;
 (b) industries which require bulk loads; and


(c) essential of catalyst industries - the establishment of which will attract other industries to this state.
 (iii) Concessional power rates to be offered to new industries falling within the abovementioned categories for a period of five years in the first instance.
 (iv) The cost of difference between existing negotiated power rates and proposed concessional rates (estimated at Rs. 20 to 25 lakhs over the period of the next five years) be given as a grant to the Industries Department by the Government; and


(v) The applications for these concessions should be screened and sanctioned by a small committee consisting of the Secretary, Industries Department (Chairman) and secretary, Finance, the secretary, Public works Department, the Director of Industries and Commerce, and the chief Engineer, Electricity Board and Projects, with powers to add new items/industries to the approved lists under the three categories of industries mentioned above."
19. In pursuance of the said G.O., the assessee in that case, Panyam Cement and Mineral Industries, was sanctioned 20% concession on the existing tariff rates in respect of it second plant. When the amount representing the said concession was ought to be treated as income of the assessee, it was contended by the assessee that the same does not constitute its income and that it was an amount granted by the government and was in the nature of a windfall wholly unconnected with the business carried on by it. This was repelled by a Bench of this court in the following words (p. 776) :


"In these circumstances, it cannot be held that the amounts granted by the Government was in the nature of a windfall to the assessee and that they are wholly unconnected with the business carried on by it. The assessee has to use electricity in the manufacture of cement and the subsidy given by the Government has only the effect of supplying electricity at reduced rates. The assessee was entitled to the concessional rates because it had been approved by the screening Committee appointed by the Government as per G.O. Ms. No. 678. If the assessee was not carrying on the business, it would not have been eligible for the said concession. The receipt of the amounts mentioned above is not of a casual and non-recurring nature. The assessee was granted the subsidy as result of G.o. Ms. 678. It is not a casual payment. Though there was no contractual obligation on the part of the government, the assessee could reasonably expect the grant of the amount for a period for which the government passed the orders. We are unable to see how it could be called a windfall or a causal receipt."
20. We are of the opinion that the principle of this decision squarely governs the present case. Just as in that case the assessee had to obtain the approval of the Screening Committee appointed by the Government to obtain the benefits of that G.O. the assessee in this case had to, and did, obtain a certificate from the director of Industries, on the basis of which he became entitled to the benefits under G.O. Ms. No. 455.


21. For these reasons, we reject the contention that the refund of the said amount was purely voluntary in nature, or that it was in the nature of a windfall or a generous bounty on the part of the State. We hold that the assessee had a right to the said refund in terms of the said G.O. which he could enforce in a court of law. The G.O. was issued prior to the setting up of the industry by the petitioner and it did expect to receive the said benefits and it did receive them. The source as well as the payments were both certain and definite.
 (ii) We shall now consider whether the said payments were unrelated to the character of the assessee or the business carried on by it. We think that the said payments or refunds, as the case may be, are closely and inseparably connected with the business carried on by the assessee. The benefits are available only from the date the new industrial undertaking commences production and for a period of five years therefrom. The refund or the subsidy, as it may be called, is dependent upon the industry continuing in production. Paragraph 7 of the G.O. says that if any industrial unit stops production, the concession shall be discontinued. We have also referred to the fact that in the case of a similar G.O., a Bench of this court held in panyam Cements case [1979] 117 ITR 770, that the grant of subsidy is closely connected with the business carried on by the assessee. The said observation applies with equal force here. In this connection, the following passage from the judgment of Rowlatt J. in Beynon (H. M. Inspector of taxes) v. Thorpe [1928] 14 TC 1(KB), may be usefully quoted (p. 13) :


"It is perfectly true that a voluntary payment or gift, though in itself not a profit or gain at all, may become a profit or gain in the hands of the recipient if it can be attached to an office or if it can be attached to an employment or vocation of which we have many instances. The best known instances are of course the offerings made voluntarily to ministers of religion which gives rise to many cases, that is, they become profits or gains of an office, because although they are voluntary, it is by the office which is the source of the minister's taxable income that he has been given them. So also voluntary payments made to persons exercising employments; gratuities to servants and so on, are undoubtedly, because they are servants-I do not mean to say from master to servants but to people like waiters, to put a concrete example-gratuities to people of that kind, which they get because they are carrying on a particular employment; although they have no right to ask for them, when they do get them they get them they get them as profits or gains in their employment and, therefore, they are profits or gains which are taxable. But a mere gifts is not a profit or gain at all."


22. This passage, and particularly the illustrations given therein, in our opinion, clearly bring out the true position in law. Indeed, the correctness of the same is not questioned before us. Applying the principle of the said decision, we hold that the amount in question was refunded or paid to the assessee because he had set up a new industrial undertaking and has commenced producing goods and continued in production. It is not possible to divorce the said payment from the character of the business carried on by the assessee. Reference may be made in this connection to cases holding that the income derived from sale of import entitlements, which were granted on account of export performance of the assessee, is income within the meaning of s. 28(iv). It was held that the import entitlements were issued only because of, and by virtue of, the exports made by the assessee, they must be treated as profits of business : vide Agra Chain Manufacturing Co. v. CIT and Kesoram Industries And Cotton Mills Ltd. v. CIT.
 (iii) In Ostime (H. M. Inspector of Taxes) v. Pontypridd and Rhondda Joint Water Board [1946] 28 TC 261; 14 ITR (supp) 45, 47 (HL), Viscount Simon stated the following two propositions (p. 278) :
 "The first proposition is that, subject to the exception hereafter mentioned, payments in the nature of a subsidy from public fund made to an undertaker to assist in carrying on the undertakers trade or business are trading receipts, that is, are to be brought into account in arriving at the balance of profits or gains under Case I of Schedule D....


The second proposition constitutes an exception. If the undertaker is a rating authority and the subsidy is the proceeds of rates imposed by it or comes from, a fund belonging to the authority, the identity of the source with the recipient prevents any question of profits arising... "


23. Only the first of the two propositions stated by Viscount Simon is relevant for our purposes. While the learned standing counsel for the Department seeks to read the said observations as applying to all subsidies given by the state to an undertaking, Mr. Y. V. Anjaneyulu seeks to limits the same only to such subsidies as are given "to assist in carrying on the undertaker's trade or business". We are not inclined to read the said proposition in such a wide fashion as the Department wants us to do. The state may give a subsidy to a person to set up a new plant. In such a case, it cannot be said that the subsidy is a trading receipt. At the same time, we must say that a subsidy to assist the business of a assessee may be given in many a manner. There are several ways of subsidising an industrial undertaken. The State may do it by supplying the raw material at a concessional rate, by giving a tax holiday, by giving a development rebate, by purchasing its goods at a rate higher than the market rate and so on. It is not possible to exhaustively lay down the several methods or manner in which the State may choose to subsidies an undertaking; but, one thing is clear in all such cases, the subsidy so given would fall within the first proposi tion of Viscount simon. However, before we express our opinion on the nature of the subsidy concerned herein, it would be appropriate to refer to a few cases cited at the Bar. Seaham Harbour Dock Company v. Crook (H.M. Inspector of Taxes) [1931] 16 TC 333 (HL), is a case where the grant made was for a specific purpose, viz., relieving unemployment. There, a dock company applied for financial assistance. The committee consented to sanction grants from time to time as the work progressed were paid for, equivalent to half the interest for two years (not exceeding an average rate of


progressed were paid for, equivalent to half the interest for two years (not exceeding an average rate of 51/2% per annum), on approved expansion made out of loans. Payments were made on that basis several times. The Revenue included these payments in the profits and gains of the company and sought to tax them. When the mater came before the House of Lords, Lords Buckmaster held that it was not a trading receipt and that (p. 353) :


"It was a grant which was made by a government department with the idea that by its use men might be kept in employment, and it was paid to and received by the Dock Company without any special allocation to any particular part of their property, either capital or revenue, and was simply to enable them to carry out the work upon which they were engaged, with the idea that by so doing people might be employed. I find myself quite unable to see that it was a trade receipt, or that it bore any resemblance to a trade receipt.'


24. Lord Atkin dealt with the mater in the following words (p. 353) :
 "It appears to me that when these sums were granted and when they were received, they were received by the appropriate body not as part of their profits or gains or as a sum which went to make up the profits or gains of their trade. It is a receipt which is given for the express purpose which is named, and it has nothing to do with their trade in the sense in which you are considering the profits or gains of the trade. It appears to me, with respect, to be quite irrelevant whether the money, when received, is applied for capital purposes or is applied for revenue purposes; in neither case is the money properly said to be brought into a computation of the profits or gains of the trade."
25. Strong reliance is placed by Mr. Anjaneyulu on this decision. He says that it is really unnecessary for this court to go into the question whether the amount received by him is capital or revenue in nature. According to him, the amount is received for a specific purpose, viz., development of the unit and that it is not open to the assessee to use the said amount as it chooses. For example, it is pointed out that it is not open to the assessee to distribute the said amount by way of dividends or to use it for meting other expenditure. Emphasis is laid upon para. 6 of G.O. Ms. 455, where it is stated :


"The subsidies, refunds and other financial concessions granted under this G.O. shall be deemed to be a development grant for each unit. Therefore, in order to ensure that this development grant is used only for the purpose intended, every application shall be accompanied by an affidavit to the effect that the amount applied for will be wholly and solely for the development of the unit. Misutilisation will, apart from other consequences, entail loss of eligibility for the continuance of th subsidies and other financial concessions for future years under this G.O. and the subsidies, refunds and financial concessions already granted may be summarily recovered."
26. Mr. Anjaneyulu wants to read the words "development of the units" as expansion and therefore, says that the said refund amount cannot be treated as a revenue receipt. We are unable to read the word "development" as meaning "expansion" only. The word "develop" is defined by the Concise Oxford Dictionary as follows :
 "Unfold, reveal, bring or come from latent to active or visible state; make or become fuller, more elaborate or systematic or bigger; make progress; come or bring to maturity."
27. Similarly, the meaning of "development" are :
 "gradual unfolding, fuller working out, growth; evolution, wellgrown state; stage of advancement."
28. In the Compact Edition of the Oxford English Dictionary, volume I,at page 707, the following meanings are given for the word "development" :
 "A gradual unfolding, a bringing into a fuller view; a fuller discovery or working out of the details of anything as a plan, a scheme, a plot of a novel.
 (c) The bringing out of the latent capabilities (of anything); the fuller expansion of any principle or activity;
 (4) gradual advancement through progressive stages; growth from within;... "


(4) gradual advancement through progressive stages; growth from within;... "
29. It, therefore, cannot be said that the said refunds were made only for the expansion of the unit. They were made with a view to strengthen the unit financially so that it can be run efficiently, and can become strong and grow. It is well-known that in the initial stages of any industrial unit, it has to face a number of problems, sometimes referred to as "teething problems". Very often, they are not able to avoid suffering losses in the initial years. It is for this reason that a number of benefits are given at this stage of development like tax holiday, initial depreciation on machinery and so on. The Subsidy in questions is also of such a nature and cannot be treated as one exclusively meant for expansion of the unit. The word "development" used in para 6. of the G. O. has not been defined. The said paragraph only means that the money shall not be diverted to any other unit or for any other purpose except for developing, improving and strengthening the unit concerned. In Seaham Harbour Dock Company's case [1931] 16 TC 333 (HL), the subsidy was not given exclusively for the purpose of expansion of the dock, but it was given for the specific purpose of relieving unemployment, which was no part of the business or trade of the assessee. In this case, however, there is no room or basis for dissociating the subsidy from the business of the assessee, inasmuch as the subsidy is given for development of the business and not for any other unrelated purpose.
30. The learned standing counsel for the Department places strong reliance upon a decision of the Bombay High Court in Dhrangadhra Chemical Works Ltd. v. CIT [1977] 106 ITR 473 (Bom). We may briefly note the facts of the case.


31. During the years 1950-51 and 1951-52, there was a glut in the market for soda ash because of large imports. In spite of levying countervailing duties, the landed cost of imported soda ash was lower than the cost of production of the soda ash in the country. There were only two plants in India, manufacturing soda ash, viz., the assessee in the said case, Dhrangadhra Chemical Works and Tata Chemicals Ltd. On the basis of the recommendations of the Tariff Board, the Government resolved on February 22, 1950, to allow a subsidy of Rs. 1 per cwt. on soda ash produced by these two companies and sold on or after the said date, provided the Government was satisfied that the companies actually sold the soda ash at the fair selling price recommended by the Tariff Board. When the assessee-company ultimately received the said subsidy, the ITO sought to bring the same to charge as income for the relevant assessment year. On a reference, it was held by the Bombay High Court, following the observations in Ostime v. Pontypridd and Rhondda Joint Water Board [1946] 28 TC 261; 14 ITR(suppl) 45, that (p. 481 of 106 ITR) :


"... Where subsidies or grants are given by the Government to assist a trader in his business, they are, generally speaking, payments of a revenue nature. They are supplementary trade receipts and not capital payments although they might be called advances or might be subject to contingency of repayment. It is clear from the recommendations of the Tariff Board, which were partially accepted by the Government by its resolution dated February 22, 1950, that the object underlying the grant of subsidy was to enable the assessee-company and Tata Chemicals Ltd. to carry on their business of soda ash profitably... Such receipt under the tests laid down by Viscount Simon is clearly a revenue receipt and has to be taken into account in arriving at the income, profits and gains of the business."
32. We have already pointed out that a subsidy to assist the business of an undertaking can be given in several ways. The method adopted in Dhrangadhra Chemicals' case [1977] 106 ITR 473, is one such. In the case before us too, the subsidy is given for strengthening and improving the industrial undertaking so that it can work properly and grow. This is another method. But in both cases the subsidy is given to assist the business of the undertaking. We are, therefore, of the opinion that the receipt of the said subsidy or refund, as it may be called, is of a revenue nature and cannot be called a capital receipt in the hands of the assessee.


(iv) We shall now deal with the main and primary submission of Mr. Y. V. Anjaneyulu, the learned counsel for the assessee, that the said refund cannot be treated as income at all in the hands of the assessee as the said expression is understood in the income-tax law. The contention is that the said amount is not a return for either the capital, labour or skill of the assessee and that it is a mere bounty born out of generosity of the State. We have already touched upon the latter aspect of the above contention. We shall now deal with the submission that the receipt of the said amount does not constitute income in the hands of the assessee. Counsel places strong reliance upon the following well-known passage from CIT v. Shaw Wallace & Co. [1932] 2 Comp Cas 276, at p. 280 :
 "The object of the Indian Act is to tax 'income', a term which it does not define. It is expanded, no doubt, into 'income', profits and gains', but the expansion is more a matter of words than of substance. Income, their Lordships, think, in this Act connotes a periodical monetary return 'coming in' with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something which is often loosely spoken of as 'capital'. But capital, though possibly the source in the case of income from securities, is in most cases hardly more than an element in the process of production."


33. According to this passage, there are four essential features of income, viz., (i) it must be a return; (ii) it must be received with a certain regularity; (iii) it must come in periodically; and (iv) it must come through a definite source. Counsel contends that though the subsequent decisions of the Privy Council and the Supreme Court have done away with the second and third requirements, the first and fourth requirements are still recognised and are considered as basic to the concept of income. The learned counsel relies upon the discussion and the reasoning contained in the decision of the Bombay High Court in Mehboob Productions Private Ltd. v. CIT [1977] 106 ITR 758, in this behalf and commends the same for our acceptance.
34. In Raghuvanshi Mills Ltd. v. CIT [1952] 22 ITR 484 (SC), the Supreme Court has observed that the observations of the Privy Council in Shaw Wallace's case [1932] 2 Comp Cas 276, with respect to the meaning of the word "income" should be read with reference to the facts of that particular case. Indeed, the Privy Council had pointed out in Gopal Saran Narain Singh (Maharajkumar) v. CIT [1935] 3 ITR 237 (PC), that the word "income" is not limited by the words "profits and gains" and that "anything which can properly be described as income is taxable under the Act unless expressly exempted."


35. There is another major reason why we cannot accept the proposition that the element of return is an essential ingredient of every income. If this were so, then the dicta of Viscount Simon in Ostime (H. M. Inspector of Taxes) v. Pontypridd and Rhondda Joint Water Board [1946] 28 TC 261; 14 ITR (Supp) 45 (HL), as also the decision of the Bombay High Court in Dhrangadhra Chemical Works Ltd. v. CIT [1977] 106 ITR 473 (Bom), should be wrong and this is not suggested by Mr. Anjaneyulu. Indeed, the observations of Viscount Simon show that even by 1946, the proposition was well established that subsidies made to an undertaker to assist him in carrying on the undertaker's trade or business are revenue receipts. Now, it cannot be suggested that a subsidy made by the State to an industrial undertaking is in the nature of a return for the capital, labour or skill employed in the industry. The subsidy can, by no stretch of imagination, be treated as a return for the investment made by the entrepreneur. For example, the grant made by the State to Dhrangadhra Chemicals Ltd. cannot, by any test, be called a return for the management, labour, skill or investment made by the industrial under-taking. But yet such subsidies have been held to be incom. We are, therefore, unable to agree with Mr. Y. V. Anjaneyulu that unless a receipt is in the nature of a "return", it cannot be treated as income, nor would we try to define the expression "income" which the Legislature has itself advisedly refrained from doing. For these reasons, we respectfully disagree with the judgment of the Bombay High Court in Mehboob Productions Private Ltd. v. CIT [1977] 106 ITR 758


Mehboob Productions Private Ltd. v. CIT [1977] 106 ITR 758 (Bom), in so far as the learned judges say that, for constituting income, the receipt must necessarily be in the nature of a "return" for the labour, and/or skill bestowed and/or capital invested by him. For this reason, we also think it unnecessary to refer to the various cases considered by the Bombay High Court in Mehboob Productions' case. Suffice it to observe that no other case has been brought to our notice which lays down that for a receipt to constitute income, it must necessarily be in the nature of return.


36. Now, looked at from the above standpoint, it would follow that items Nos. 2 and 3 comprised in the amount concerned herein undoubtedly constitute income in the hands of the assessee. So far as item No. 1 is concerned, it is no doubt a refund of sales tax on purchase of machines and the amount spent for purchase of machines is undoubtedly in the nature of a capital receipt. But it must be remembered that the refund is being made after the undertaking has commenced production and with a view to facilitate the development of the unit. It is not a subsidy given for setting up the plant, but subsidy given for efficient and profitable running of industry and its growth. We, accordingly, hold that all the three items constitute the income of the assessee chargeable under s. 28 of the Act.
37. In this view of the matter, it is not necessary for us to consider whether the amount refunded represented refund of sales tax paid by the assessee or whether it is a contribution and grant made by the State adopting the basis of sales tax only as a measure. Once we hold that the subsidy constitutes income in the hands of the assessee, the said distinction, if any, becomes merely academic.
 (II). The next question is whether the three items comprised in the said refunded amount or any of them fall within the four corners of s. 41(1). Section 41 (1) of the I.T. Act reads as follows :


"41. (1) where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and, accordingly, chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not."


38. The contention of the learned standing counsel for the Department is that items Nos. 2 and 3 comprised in the said amount do definitely fall within s. 41(1) inasmuch as, admittedly, these two items were claimed as deduction in the previous assessment years and were now refunded to the assessee concerned herein. So far as the first item is concerned, it was not claimed or allowed as a deduction and, therefore, it is conceded, it stands on a different footing. On the other hand, the contention of Mr. Y. V. Anjaneyulu, the learned counsel for the assessee, is that for s. 41(1) to apply, the refund of sales tax must be as sales tax. He submits that s. 41(1) contemplates a case where sales tax may have been refunded in a subsequent assessment year as a result of appeal, revision or other proceeding. Mr. Anjaneyulu submits that in this case the assessee's liability to sales tax was neither altered nor rescinded. In this behalf, he also submits that the amount refunded to the assessee was not paid by the sales tax department nor from the sales tax account of the state but from a different head of account altogether. It is pointed out that the amount paid to the assessee was debitable to "35-Industries-C. Grants in aid-Contribution-schemes included in the IV Five Year Plan-XIV-B Grants towards Incentives to Industries."


39. We are unable to agree with the contention of Mr. Anjaneyulu. There are no words in sub-s. (1) of s. 41 which support such a contention. Sub-s. (1) is couched in very wide terms. It says that if the assessee had obtained "any amount in respect of such loss or expenditure or some benefit in respect of such trading liability, by way of remission or cessation thereof", the amount so obtained shall be deemed to be profits and gains of his business. The words "any amounts" and "in respect of" need to be noticed. In view of this language, it is not possible to agree with Mr. Anjaneyulu that unless sales tax paid by the assessee was refunded as sales tax and/or as a result of the proceedings under the said Act, the refund cannot be deemed to be income within the meaning of 41(1). We see no reasons not to give full effect to the fiction enacted by s. 41(1). This is also the decision of this court in Panyam Cement's case , the facts of which we have referred to hereinbefore. It was observed (at p. 777) :
 "In the present case, the assessee had paid the electricity charges at the original rate in full and claimed an allowance in respect of the said expenditure. In pursuance of the policy of the Government to supply electricity at a concessional rate of 20% less, the above amounts were paid to the assessee towards the expenditure incurred by him in regard to electricity charges and hence they should be deemed to be profits and gains of the business. All the requirements of s. 41(1) of the I.T. Act have been fulfilled."


40. It must be noticed that even in Panyam Cement's case [1979] 117 ITR 770, the subsidy was given not by the Electricity Board but by the Government and yet it was held that the subsidy made by the Government falls within s. 41(1).
41. Mr. Anjaneyulu then argued that what is refunded is not sales tax but a subsidy measured in terms of the sales tax paid. This is again an argument which is merely academic. Section 41(1) creates a fiction; what is not income in the ordinary sense of the term is deemed to be income under this provision. Once the amount received by the assessee falls within the four corners of s. 41(1), it is immaterial under what name the amount is received. Mr. Anjaneyulu relied upon Senairam Doongarmall v. CIT to contend that the measure and method of payment is not decisive of the character of the receipt. That was a case where the tea estate including certain factories and buildings were requisitioned for defence purposes by the military authorities. Though the possession of the assessee was not disturbed, the manufacture of tea was stopped completely. For the years 1944 and 1945, the assessee was paid compensation under the Defence of India Rules calculated on the basis of the out-tern of tea that would have been manufactured by the assessee during the said years. The question arose whether the amounts of compensation so received were revenue receipts taxable in the hands of the assessee. It was held by the Supreme Court that (p. 397) :
 "It is the quality of the payment that is decisive of the character of the payment and not the method of the payment or it measure, and makes it fall within capital or revenue."


42. Then they considered the character of the payment in that case with reference of the principles emerging from decide case and held that because the business of the assessee, viz., production of tea was stopped altogether and business being carried on by it was discontinued, the amounts received cannot be treated as income from trade or business notwithstanding the fact that payment was made to compensate the assessee and the measure was the out-turn of tea which would have been manufactured by the assessee but for the intervention of the state. It was emphasised that it was not a case in which the business continued; in such a case, it was observed that the amount paid could be treated as one conceived to bring up the profits to normal level. We are unable to see how the principle of the said decision applies here. The ratio of the Supreme Court's decision is : once the business of the assessee was completely stopped, the amount received cannot be treated as its income from business, notwithstanding the method or manner of payment. This is also the principle of the decision in Simpson v. Executors of Boner Maurice [1929] 14 TC 580 (CA). In this case, a British subject who held certain securities, etc., in Germany, received at the end of the war-he having died meanwhile, his executors received the amounts-certain amounts by way of compensation in terms of the Peace Treaty. The compensation paid was calculated in terms of the interest the said securities would have earned in the normal course. (During the war years, the interest was not remitted). The Court of the Appeal held that what was received was compensation in terms of the Peace Treaty, and not interest and, hence, not taxable, notwithstanding the fact that the measure adopted for determining the quantum of compensation was the interest that would have accrued.


43. The next case relied upon is S. R. Y. Sivaram Prasad Bahadur v. CIT , wherein it was held that interim payments under s. 50(2) of the Madras Estates (Aboolition and Conversion into Ryotwari) Act, 1948, received every year by a former holder of an estate during the period between the taking over of the estate and final determination and deposit of compensation under the Act, are of a capital nature and not liable to income-tax. Firstly, this case does not arise under, nor does it consider, s. 41(1). Secondly, the nature of the payments fell to be determined in the light of the provision of the Madras Act under which the payments were made. We may point out that, in another case arising under the Hyderabad Jagir Abolition Regulations, in Raja Rameshwara Rao v. CIT , the Supreme Court held that the interim payments received constitute income. Be that as it may, the cases cited by Mr. Anjaneyulu do not deal with, and were not decided with reference to, s. 41(1) and, therefore, are of no help to him in this behalf.
44. We are, therefore, of the opinion that items Nos. 2 and 3 comprised in the said amount do squarely fall within s. 41(1) and must be treated as gains of business.
45. III. Lastly, Mr. Anjaneyulu relied upon circular No. 142 of the Central Board of Direct Taxes, dated August 1, 1974. The circular is found printed at p. 151 of the statutes section in [1974] 95 ITR. It reads as follows :


"Subject : Taxability of subsidy - Revenue receipt or capital receipt '10 percent. Central outright grant or subsidy Scheme, 1971' -Clarification- Regarding.
46. The Board had occasion to consider whether the amount of subsidy received under 10% Central Outright Grant of Subsidy Scheme for industrial units to be set up in certain selected backward districts/areas would constitute revenue receipt or capital receipt in the hands of the recipient for the purpose of income-tax.
 2. I am directed to say that the payment of subsidy under the scheme is primarily given for helping the growth of industries and not for supplementing their profits. Under the scheme, the quantum of subsidy is determined with reference to the fixed capital and not the profits. The working capital has been specifically excluded from the computation of fixed capital for this purpose. One of the conditions for the grant of the subsidy is that the undertaking must remain in production at least for a period of five years after it goes into production. Since the subsidy is intended to be a contribution towards capital outlay of the industrial unit, the Board are advised that such subsidy can be regarded as being in the nature of capital receipt in the hands of the recipient.
 3. Contents of this Circular may kindly be bought to the notice of all the officers working in your charge.
 (Sd.) T.P. Jhunjhunwala, Secretary, Central Board of Direct Taxes, (F. No. 204/25/74-ITA-II)."


47. A perusal of the circular makes it clear that it was issued with respect to a particular scheme, viz., 10% Central Outright Grant of Subsidy Scheme of 1971. It is not a circular applicable to all types of subsidy schemes. This much is conceded by Mr. Anjaneyulu also. But what he argues is that inasmuch as our scheme is in the same terms as the Central Scheme of 1971, the principle of the said circular should be applied. We are unable to accede to this contention. We cannot extend the scope of the circular by analogy. Secondly, on a perusal of the Central Scheme of 1971 we find that the scheme concerned therin was not in the same terms as the State Scheme with which we are concerned herein. The subsidy under the Central Scheme was available only to the industrial units with a capital of less than fifty lakhs whereas the State scheme is applicable to units with a capital up to five cores. The circular was applicable only to those industrial units which were located throughout the State. To those industries which are located in the specified districts/areas called "selected districts/areas" where as the State scheme is applicable to industries locsted throughout the state. To those industries which are located in the specified backward districts, certain additional incentives are provided under the State scheme. paras 5 to 7 of the Central Scheme would show that it prescribed a particular procedure which had to be followed by the industrial units for availing of the benefits thereunder which is at variance with the procedure prescribed under the state scheme. Moreover, the Central Scheme did not provide for refund of sales tax or other taxes and charges paid but provide for an outright grant to the extent of 10% of the estimated fixed capital investment. We are therefore, of the opinion that the said circular is absolutely of no help to the assessee herein.


48. We may incidentally refer to another controversy raised though not fully debated before us. It was contended that the circular issued by the Central Board of Direct Taxes is binding upon the assessing authorities and has also got to be followed by the courts, notwithstanding the fact that the said circular may run counter to the provisions of the Act.
49. The power to issue circulars by the Central Board of Direct Taxes is derived from s. 119(1) of the Aact, which reads as follows :
 "The Board may, from, time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board :
50. Provided that no such orders, instructions or directions shall be issued -
 (a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or


(b) so as to interfere with the discretion of the Appellate Assistant Commissioner or the Commissioner (Appeals) in the exercise of his appellate functions"
51. The power is conferred upon the Board "for the proper administration of this Act" and it would follow that this power has to be exercised consistent with and within the four corners of the Act. In other words, the Board is given the power to fill in the details or to prescribe procedures where the Act and the Rules are silent. But the said power can never be constructed as one enabling the Board to issue circulars overriding, modifying or in effect amending the provisions of the act. Mr. Anjaneyulu argues that the circulars which are favourable to the assessees are binding but not those which are against the interests of the assessees. Again we are unable to discern any principle behind such a distinction. The power conferred by the Board by s. 119 cannot be put on a higher footing than the rule making power and it is well-settled that the rule-making authority cannot travel beyond the four corners of the Act, nor can it makes authority cannot travel beyond the four corners of the Act, nor can it make a rule contrary to the provisions of the Act. Indeed in Jalan Trading Co. Private Ltd. v. Mill Mazdoor Sabha , the provision empowering the Central Government to remove doubts or difficulties in giving effect to the provisions of the Act was struck down as amounting to delegation of the legislative power to executive authority which is impermissible. However, Mr. Anjaneyulu has brought to our notice a decision of the Supreme Court in Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913, where at page 921, the Supreme Court observed as follows :


"Now, coming to the question as to the effect of instructions issued under section 5(8) of the Act, this court observed in Navnit Lal C. Javeri v. K. K. Sen, Appellate Assistant Commissioner, :
 'It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under section 5(8) of the Act. This circular pointed out to all the officers that it was likely that some of the companies might have advanced loans to their shareholders as a result of genuine transactions of loans, and the idea was not to affect such transactions and not to bring them within the mischief of the new provision.' The directions given in that circular clearly deviated from the provisions of the Act, yet this court held that the circular was binding on the Income-tax Officer."
52. On the basis of the last sentence in the above passage, Mr. Anjaneyulu contends that even though a circular of the Central Board runs counter to the provisions of the Act, still it has to be followed and applied. We are unable to give effect to such extreme contention, which, in our opinion, does not flow from the decision of the Supreme Court. Indeed, the Madras High Court in A. L. A. Firm v. CIT [1976] 102 ITR 622, has also held that the said decision cannot be understood as suggested by the learned counsel. Mr. Anjaneyulu brought to out notice certain other decisions as supporting his contention. But we do not think it necessary to go into this question at any depth, since it is not necessary for the purpose of the present case. We only wish to indicate our dissent from the extreme proposition advanced by the learned counsel for the assessee, which is supported neither by principle nor by any authority.