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PETITIONER: S. SUNDARAM PILLAI, ETC.

       Vs.

RESPONDENT: V.R. PATTABIRAMAN ETC.

DATE OF JUDGMENT24/01/1985

BENCH: FAZALALI, SYED MURTAZA BENCH: FAZALALI, SYED MURTAZA VARADARAJAN, A. (J) MUKHARJI, SABYASACHI (J)

CITATION:  1985 AIR  582            1985 SCR  (2) 643  1985 SCC  (1) 591        1985 SCALE  (1)74  CITATOR INFO :  F          1992 SC 184  (6)

ACT:       Rent  Control-Tamil Nadu  Buildings  (Lease  and  Rent Control) Act  1960, sec.  10(2 J(i)-Proviso and Explanation- Scope of-Wilful default Meaning of.

HEADNOTE:       Section 10 of the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960(for short, the Tamil Nadu Act) deals with the eviction  of tenants  and postulates that a tenant shall not be  evicted  whether  in  acquisition  of  a  decree  or otherwise except  in accordance  with the provisions of s.10 or ss. 14-16 Section 10(2)(i) of the Tamil Nadu Act provides for the eviction of a tenant on the ground of non-payment of rent. It  lays down  that where  the Controller is satisfied that the  tenant has not paid or tendered the rent within 15 days after the expiry of the time fixed in the Agreement y f tenancy or in the absence of any such Agreement, by the last date of  the month next following that for which the rent is payable, he  (tenant)  undoubtedly  commits  a  default  The proviso to  sub-s.2 provides  that in  any case  falling  in clause (i), if the Controller is satisfied that the tenant’s default to  pay or  tender rent  was  not  wilful,  he  may, notwithstanding anything  contained in s.11, give the tenant a reasonable  time, not  exceeding 15  days to pay or tender the rent  due by  him to  the landlord upto the date of such payment  or  tender  and  on  such  payment  or  tender  the application shall  be rejected.  The Explanation  which  was added by  Act 23 of 1973 to the said proviso stipulates that for the purpose of sub-s-2 of s 10, default to pay or tender rent shall  be construed  as wilful,  if the  default by the tenant in  the payment or tender of rent continues after the issue of  two months  notice by  the landlord  claiming  the rent.       In Civil Appeals Nos. 1178 of 1984, 1992 of 1982, 2246 of 1982  and 1659  of 1982, the respondents-landlords issued notices to  the appellants-tenants  demanding the  amount of rent in  arrears and  thereafter  filed  eviction  petitions against the appellants-tenants, inter alia, on the ground of "wilful default".  All the  appellants-tenants complied with

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the notices  issued by their respective landlords except the appellant-tenant in  Civil Appeal  No. 1659 of ]982 where he made part payment only. However in Civil Appeal 3668 of 1982 and  4012   of  1982  the  respondents-landlords  had  filed eviction petitions  against  the  appellantstenants  without issuing such notices before filing of eviction petitions. In all the 644 appeals, the  Madras High  Court passed and/or confirmed, as the case  may be,  the orders  of eviction  holding that the ground of‘willful’ default mentioned in section 10(2)(i) had been proved  against the  tenants. Hence  these  appeals  by special leave.  The common question of law involved in these appeals was  as to  what is  the interpretation  of the term "wilful default"  in the  Explanation to the Proviso of sub- s.2 of s. 10 of the Tamil Nadu Act.       Counsel  for the appellants-tenants contended (i) that despite the  explanation it  is open  to  the  court  on  an appraisement of  the circumstances of each case to determine whether or  not the  default]t was wilful and in doing so it cannot be  guided wholly and solely by the Explanation which is merely  clarificatory in  nature and  (ii) that mere non- payment of arrears of rent after issue of two months’ notice cannot in all circumstances automatically amount to a wilful default if  the non-payment  does  not  fulfil  the  various ingredients of  the term "wilful default". On the other hand it was  argued by  counsel for the respondents-landlords (i) that the  very purpose  of the Explanation is to bring about uniformity in  court decisions  by laying  down a conclusive yardstick in  the shape  of the  Explanation and  once it is proved that  after issue of two months’ notice if the tenant does not pay the arrears within the stipulated period of two months, he is liable to be ejected straightaway.       On  the question of interpretation of the terms‘wilful default’ appearing  in the  proviso to  s.l0(2) of the Tamil Nadu Act coupled with the Explanation, the Court, ^              HELD:   Per  Fazal Ali  and A.  Varadarajan JJ. (majority)             1. Though the Court is concerned mainly with the Tamil Nadu  Act, yet  in order  to understand the contextual background of  the words  ‘wilful default’  and  its  proper setting, it  Will be  useful to  refer to  those Acts  which contain the  term wilful default’ either in a negative or in positive form.  These Acts   are  (l) A P. Buildings (Lease, Rent and  Eviction) Control  Act of  1960, the  Orissa House Rent Control Act 1967 and the Pondichery Buildings Lease and Rent Control  Act 1969, (hereinafter referred to as the A.P. Act, Orissa  Act and Pondicherry Act respectively). Although the default  contemplated by these Acts is wilful yet it has been  put  in  a  negative.  Form  which  undoubtenly  gives sufficient leeway  to the tenant to get out of the rigors of the statutory  provision   the relevant  provisions of these Acts relating  to eviction  of  tenants  on  the  ground  of ’wilful default’  in payment  of  rent  contemplate  that  a default simpliciter  would not  be sufficient  to evict  the tenant but it must further be shown that the default was not wilful. These  Acts are  however, silent on the mode and the manner in  which a court may decide as to what is wilful and what is  wilful. Thus  these Acts have left it to the courts to decide  this question.  So far  as the  Tamil Nadu Act is concerned, it  makes a  marked improvement by broadening the ambit of   ’wilful default’ in the proviso to s. 10(2) which is  further   clarified  by   an  Explanation  added  to  it subsequently. Before  coming to  any conclusion  it  may  be

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necessary to  examine the exact meaning of the words ’wilful default’ as  also the  interpretation and  the scope  of the Proviso and the Explanation. [657H; 658A]       2.  The words ’wilful default’ would mean a deliberate and  intentional   default  knowing  fully  well  the  legal consequences thereof. A consensus of the 645 meaning of  the words  ‘wilful default’  appears to indicate that default  in order  to A  be wilful  must be intenional, deliberated  and   calculated  and   conscious,  with   full knowledge of  legal consequences  flowing therefrom.  [660B; 661A-B]        ‘A Dictionary of Low’ by L.B. Co zon, page 361; Words and Phrases  volume 11-A (Permanent Edition) page 268; Words and  Phrases   Vol.  45,  pages  296.  Webster’s  Third  New International Dictionary  Vol. III  page 2617  and Volume  I page 590  and Black’s  Law Dictionary(4th  Edn.)  page  1773 referred to.       3.  The well  established rule  of interpretation of a proviso is that a proviso may have three e . rate functions. Normally, a proviso is meant to be an exception to something within the  main enactment  or to  qualify something enacted the in which but for the proviso would b. within the purview of the  enactment. In  other words,  a proviso cannot be ton apart from  the main enactment nor can it be use, to nullify or set at naught the real object of the main enactment. Whil interpreting a  proviso sure  be taken  that it  is used  to remove special  cases from the general enactment and provide for them  separately In short, generally speaking  a proviso is intended  to limit  the enacted provision so as to except something which  would have  otherwise been  within it or in some measure  to modify  the enacting  clause.   Sometimes a proviso may be embedded in the main provision and becomes an integral part  of it  so  as  to  amount  to  a  substantive provision itself.  To Sum  up,  a  proviso  may  serve  four different purposes:           1. qualifying or excepting certain provisions from the main enactment;            2. it may entirely change the very concept of the intendment  of   the  enactment   by  insisting  on  certain mandatory conditions  to be  fulfilled in  order to make the enactment workable;       3.  it may  be embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and       4. it may be used merely to act as an optional addenda to the enactment with the sale object of explaining the real intendment of  the  statutory  provision.  [661D-E;  664C-D; 665H; 666A-C ]       Craies in ‘Statute Law’ (7th Edn.) Page 218, Odgers in ’Construction of  Deeds and Statutes’ (Fifth Edn.) 317, 318. Sarathi  in   Interpretation  of  Statutes’  page  294-2951. referred to.       Local  Government Board v. South Stoneham Union [1909] A.C. 57.  Ishverlal Thakorelal Almala v. Motiobhai Nagjibhai [1966] I SCR 367. Madras and Southern Maharatta Railway  Co. Ltd. v.  Bezwada Municipality.  AIR 1944 C71. West Derby  v. Metropolitan Life  Assurance Co. [1897] AC 647. Rhodda Urban district Council  v Taff Vale Railway Co.  [1909] AC 253 and Jennings and Another v KellY [1940] AC 206 referred to.       Commissioner  of  Income  Tax,  Mysore,  etc  v.  Indo Mercantile Bank  Ltd. [1959]  Z Supp.  SCR 256, Shah Bhojraj Kuverji Oil  Mills and  Ginning Factory  v. Subhash  Chandra Yograj Sinha [1962] 2 SCR 159 State of Rajasthan 646

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v. Leela Jain [1965] I SCR 276, Sales Tax officer, Circle 1, Jabalpur v.  Hanuman Prasad [1967] I SCR 831, commisioner of Commercial Taxes  and Ors.  v. R.S. Jhaver and Ors. [1968] I SCR 148,  Dwarka Prasad  v Dwarka Das Saraf [19761 1 SCC 128 and Hiralal  Rattanlal etc.  v. State  of U.P. and Anr. etc. [19731 I SCC 216 relied upon.       4.  The next  question is  as to what is the impact of the Explanation on the Proviso which deals with the question of wilful default It is now well settled that an explanation added  to   a  statutory  provision  is  not  a  substantive proviso,o in  any sense of the term but as the plain meaning of the  word itself  shows, it is merely meant to explain or qualify certain  ambiguities which  may have  crept  in  the statutory provision.  From a  conspectus of the authorities, it is  manifest that  the object  of  an  Explanation  to  a statutory provision is-      (a)  to explain  the meaning  and intendment of the Act           itself;      (b)   where  there is any obscurity or vagueness in the           main enactment,  to clarify the same so as to make           it consistent  with the  dominant object  which it           seems to subserve,      (c)  to provide  an additional  support to the dominant           object of  the Act  in order to make it meaningful           and purposeful;      (d)  an Explanation cannot in any way interfere with or           change the enactment or any part thereof but where           gap is  left which  is relevant for the purpose of           the Explanation, in order to suppress the mischief           and advance  the object  of the Act it can help or           assist the  court in interpreting the true purport           and intendment of the enactment; and      (e)  it cannot,  however, take  away a  statutory right           with which  any person  , under a statute has been           clothed or  set at naught the working of an Act by           becoming an hindrance in the interpretation of the           same.                                    [666F-G ; 668G-H; 669A-C]       Sarathi  in Interpretation of Statutes, p. 329; Swarup in Legislation  and Interpretation’ pages 297-298 and Bindra in ’Interpretation of Statutes’ (5th Edn.) page 67, referred to.       Burmah Shell Oil Storage and Distributing Co. Of India Ltd. and  Anr. v.  Commercial Tax  Officer and Ors. [1961] I SCR 902,  Bihta Cooperative Development Cane Marketing Uaion Ltd. and Anr. v. The Bank of Bihar and Ors. [1967] 1 SCR 848 and  Dattatraya   Govind  Mahajan   and  Ors   v.  State  of Mahararashtra and Anr [1977] 2  SCR 790 relied upon.       5(1).  Although almost  every State  has its  own Rent Act,  neither  the  Explanation  nor  the  statutory  clause concerning the  term ’wilful  default’ is mentioned therein. These Acts  seem to proceed only on the simple word default’ and perhaps  to buttress their intention they have laid down certain guidelines  to indicate  the  grounds  of  ejectment wherever a  default takes  place. Looking  generally at such Acts,  they  seem  to  have  first  provided  statutorily  a particular date  or time  when the  tenant on being inducted under the  contract of  tenancy, is  to pay the rent. Such a provision may  or may  not be  against the  contract of  the tenancy 647 and if  it is  to that  extent, it  overrides the  contract, This, therefore,  gives  sufficient  notice  to  any  tenant inducted in any premises that he must pay the lent according to the  yardstick set  out by the Act, failing which he runs

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the risk  of being  evicted for default. Some Acts, however, have provided  a particular number of defaults to enable the Rent Controller  or Court to find out whether such a default would entitle the landlord to get an order of eviction There are some  other Acts  which have  made rather ingenious and, apt provisions  for expediting  the process  of eviction  in case of  default by  providing  that  whenever  a  suit  for eviction is filed against a tenant on the ground of default, the tenant  in order  to show  his  bona  fides  must  first deposit the  entire rent,  arrears and  cost in the court of the Rent  Controller where  the action  is field on the very first date  of hearing,  failing  which  the  court  or  the authority concerned  would be  fully justified  in  striking down the  defence and  passing an order of eviction then and there. The dominant object of such a procedure is to put the tenants on  their guard. It is true that such provisions are rather harsh  but if  a tenant goes on defaulting then there can be  no other  remedy  but  to  make  him  pay  the  rent punctually unless  some drastic  step is  taken. These Acts, therefore, strike  a just  balance between  the rights  of a landlord and  those of  a tenant.  For deciding  the present cases, it  is not  necessary to go either into the ethics or philosophy  of   such  a  provision  because  the  Court  is concerned  with   statutes   having   different   kinds   of provisions. The  relevant provisions of the A.P., Orissa and Pondichery Acts  are almost  in pari  materia the proviso to Section 10(2)  of the  Tamil Nadu  Act. The  only difference between the  Tamil Nadu  Act and  the  other  Acts  is  that whereas an Explanation is added to the proviso to s.l0(2) of the Tamil  Nadu Act,  no such  Explanation has been added to the provisions  of the other three Acts. Hence the Court has to consider  the combined  effect of  the proviso  taken  in conjunction with  the Explanation.  From an  analysis of the various concomitants  of the Explanation, the position seems to be that-              (a)  there should be a default to pay or tender lent; E        (b)  the  default  should  continue  even  after  the landlord has  issued two months’ notice claiming the arrears of rent; and       (c)  if, despite  notice, the arrears are not paid the tenant is  said to  have  committed  a  wilful  default  and consequently liable to be evicted forthwith.                                      [669E H; 670A-D, F-G] F       5  (ii) The Explanation, does not at all take away the mandatory duty  cast on  the Controller  in the  Proviso  to decide if a default is wilful or not. Indeed if the landlord chooses to  give two months notice to his tenant and he does not pay  the rent,  then, in  the absence of substantial and compelling  reasons,   the  Controller   or  the  court  can certainly presume  that the  default is wilful and order his eviction straightaway.  There is  no force  in the view that whether two  months notice  for payment  of rent is given or not, it  will always  be open  to the  Controller under  the Proviso  to  determine  the  question  of  ’wilful  default’ because that  would render  the very  object of  explanation otiose and nugatory. [673D-E]       6.  Two factors mentioned in s.10(2)(i) seem to give a clear notice  to a  tenant as to the mode of payment as also the last  date by  which he  is legally  supposed to pay the rent.  This,   however,  does  not  put  the  matter  beyond controversy because  before passing  an  order  of  eviction under the proviso, it must also be 648 proved that  the default was wilful and if the Controller is

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of the  opinion that  the default  in the  circumstances and facts of  the case  was not wilful, in the sense that it did not contain  any of  the qualities or attributes of a wilful default as  indicated, he  may give  the tenant a reasonable time, not  exceeding 15  days, to pay the entire rent and if this is  complied with,  the application for ejectment would stand rejected.  The difficulty, however . is created by the Explanation which  says that  once a  landlord gives  a  Iwo months’ notice  to his tenant for paying the arrears of rent but the tenant continues in default even thereafter, then he is liable  to be  evicted. There  is a good deal of force in this argument  which has  its own  advantages. In  the first place, it  protects the  court from going into the intricate question as  to what  is a wilful default and whether or not the conditions  of a  wilful  default  have  been  satisfied which, if permitted would differ from case to case and court to court.  But the  difficulty is that if such a blanket ban is put on the court for not examining the question of wilful default once the conditions laid down in the Explanation are satisfied  then   it  would   undoubtedly  lead  to  serious injustice to the tenant. A subsidiary consequence of such an interpretation would  be that  even though the tenant, after receipt of  the notice, may be wanting to pay the arrears of rent  but   is  unable   to  do  so  because  of  unforeseen circumstances like,  death, accident,  robbery,  etc.  which prevent  him   from  paying   the  arrears,  yet  under  the Explanation he  has lo  be evicted.  Another  difficulty  in accepting the first view, viz., if two month’s notice is not given, the  tenant must  not be  presumed  to  be  a  wilful defaulter, is that in such a case each landlord would has to maintain a separate office so that after every default a two months’ notice  should be given and if no notice is given no action can  be taken  against a  tenant. The correct view in the matter is in the following terms.       (i)  Where no notice is given by the landlord in terms of the  Explanation, the  Controller. having  regard to  the four conditions spelt out in this judgment has the undoubted discretion to  examine the question as to whether or not the default committed  by the tenant is wilful, If he feels that any of  the conditions  mentioned is  lacking  or  that  the default was  due to  some unforeseen  .circumstances, he may give the  tenant a  chance of locus paenitentiae by giving a reasonable time,  which the  statute puts at 15 days, and if within that  time the  tenant pays the rent, the application for ejectment would have to be rejected.      (ii) If the landlord chooses to give two months’ notice to the  tenant to  clear up the dues and the tenant does not pay the  dues within  the stipulated time of the notice then the Controller  would  have  no  discretion  to  decide  the question of  wilful default  because such  a conduct  of the tenant would  itself be presumed to be wilful default unless he shows  that he  was  prevented  by  sufficient  cause  or circumstances beyond  his control  in honouring  the  notice sent by the landlord.                          [671G-H; 672A-D; F; 673F-H; 674A-B]      N. Ramaswami Reddiar v. S.N. Periamuthu Nadar, 1980 Law Weekly (vol.  93) p. 577 and Khivaraj Chordia v. C. Maniklal Bhattad AIR 1966 Madras 67 approved.       Rajeswari  v. Vasumal  Lalchand AIR  1983  Madras  97, referred to.       7.  In the  light of the above principles and tests to be applied  by courts  in deciding  the question  of  wilful default, the  Court allowed Civil Appeals Nos. 1178 of 1984, 1992 of  1982 and  2246 of  1982 and  dismissed rest  of the appeals. [678B]

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649 Per Mukharji.j. (dissenting) A       l(i)  Default  has  been  construed  in  various  ways depending upon the context. ’ Default’ would seem to embrace every failure  to perform part of one’s contract or bargain. It is  a purely  relative term  like  negligence.  It  means nothing  more,   nothing  less.   than  not  doing  what  is reasonable under the circumstances not doing something which you  ought   to  do.   having  regard  to  the  transaction. Similarly, default  in payment  imports something  wrongful, the omission  to do  some act which, as between the parties, ought to have been done by one of them. It simply means non- payment, failure  or omission  to pay.  Default  happens  in payment of rents under various contingencies and situations. Whether the  default is  wilful or not is also a question of fact to  be proved  from evidence, direct and circumstantial drawing inferences  from certain  conduct. If the Courts are free to  decide from  varying circumstances  whether default was wilful or not, then divergence of conclusions are likely to arise  one judicial  authority coming  to the  conclusion from certain  circumstances that  the  default  was  wilful, another judicial  authority coming  to a contrary conclusion from  more   or  less   same  circumstances.   That  creates anomalies. In  order to  obviate such  anomalies  and  bring about a  uniform  standard  that  Explanation  explains  the expression, wilful"  and according to the Explanation added, a default  to pay  or tender  rent small  be construed",  as wilful if  the default  by the  tenant n th- payment of rent continues after  issue of two months’ notice by the landlord claiming the  rent. If that is the position, in a case where the landlord  his given  notice to  the tenant  claiming the rent and  the tenant  has not  paid the same for two months, then the  same must be construed as wilful default, whatever may be  the cause  for non-payment.  Whether in a particular case default  is  wilful  or  not,  must  be  considered  in accordance with  the definition  provided in the Explanation to Proviso  to sub-section  (2) of section 10 of the Act. If it was  intended that  the courts  would be  free  to  judge whether in  a particular  set up  of facts,  the default was wilful or not where no notice has been given, then in such a case there  was no  necessity of  adding this Explanation to the Proviso  which-is a  step to  the making of the findings under clause  (l) of  sub-section (2)  of section  10 of the Tamil Nadu Act. It is well-settled that Legislature does not act without purpose or in futility.                                     [680E-G; 681B-E; 682E-F]       _  ._  Stroud’s  Judicial  Dictionary  Vol.  1.  Third Edition. page  757, Prem’s Judicial Dictionary. Vol. 1 196 t page 483.  The Dictionary  of English  Law  page  597  Fakir Chander  Datt  and  Other  v.  Ram  Kumar  Chatterji  Indian Appeals. Vol XXXI. p. l9 n referred to,       I(ii)  If a  definition is  provided of an expression, then the  courts are  not free  to construe  the  expression otherwise unless  it is  so warranted  by  the  use  of  the expression such  as "except  otherwise provided or except if the  context   otherwise  indicates."   There  is   no  such expression in  the instant  case. There  may be  in  certain circumstances intrinsic  evidence indicating otherwise. Here there is none. [682C-D]       2(i)  The expression  "shall be  construed" would have the effect  of providing  a definition  of wilful default in the proviso  to sub-section  (2) of section 10. According to the explanation,  a default  to pay or tender rent "shall be construed", 650

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as wilful  if the  default by  the tenant  in the payment of rent continues  after issue  of two  months’ notice  by  the landlord claiming  the rent.  If that  is the position, in a case where  the landlord  has given  notice  to  the  tenant claiming the  rent and  the tenant has not paid the same for two month’s,  then the  same must  be  construed  as  wilful default, whatever  may be  the cause  for  non-payment.  The Legislature has  chosen to  use  the  expression  "shall  be construed as  wilful" if  after a notice by the landlord for two months’ failure to pay or tender rent on the part of the tenant continues,  and if  it  is  wilful  then  under  sub- section(2) clause  (1) read with the proviso as explained by the Explanation,  the Controller  must be satisfied and give an order  for eviction.  The  Legislature  has  provided  an absolute and  clear definition  of  ’wilful  default’  Other circumstances cannot  be considered as wilful default. It is true that  Legislature has  not chosen  to use  language  to indicate that  in no  other  cases,  the  default  could  be considered to  be wilful  except one  default case which has been  indicated  in  the  Explanation.  But  it  is  not  so necessary be  cause Legislature  has defined ’wilful default by the  expression that  default to pay or tender rent shall be construed’  meaning thereby  that it  will mean only this and no  other. Therefore,  a default  will be  construed  as wilful, only  where the  landlord has  given notice  and two months have expired without payment of such rent. [682 B-R-C; H; 681 D-F; 683A]       2(ii)Statutory  provisions must be construed, if it is possible, that absuridity and mischief may be avoided. Where the  plain   and  literal   interpretation  of  a  statutory provision produces  a manifestly  absurd and  unjust result, the court  might modify the language used by the Legislature or even (’o some violence to it so as to achieve the obvious intention  Or   the   Legislature   and   produce   rational construction and  just results.  Ironing out  the creases is possible but not rewriting the language to serve a notion of public Policy held by the judges [683C: 684B]       2(iii) Where two constructions are possible, one which avoids anomalies  and creates  reasonable results  should be preferred but where the language is clear and where there is a  purpose  that  can  be  understood  and  appreciated  for construing  in  one  particular  manner,  that  is  to  say, avoidance of  divergence of  judicial opinions in construing wilful default  and thereby avoiding anomalies for different tenants, it  would not  be proper in such a situation to say that this definition of wilful default was only illustrative and not  exhaustive.  The  Proviso  to  sub-section  (2)  of section 10  cannot be  cons trued  as illustrative  when the Legislature has  chosen to  use  the  expression  "shall  be construed". [683D-F]       In  the aforesaid  view ot  the matter, the individual appeals are  disposed of  accordinglY. that  is to saY. OnlY those appeals of tenants are dismissed where eviction orders were passed  after two  months’ notice  had been  given  and there was  continuance of  default,  and  the  rest  of  the appeals are allowed. 1685B-C]       Seaford  Court Estates Ltd. v. Asher [1949] 2 All E.R. 155 at  pages 164  (CA), Regina  v.  Barnet  London  Borough Council Ex parte Nilish Saah, 1983 (2) Weakly Law Reports p. 16 at  p. 30.,  Carrington and  others v.  Therm-a-Stor Ltd. 1983 (1) Weakly Law Reports p. 138 at p. 142. referred to. 651

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JUDGMENT:       CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1178 of 1984             From the Judgment and Order dated the 15th July, 1982 of  the High Court of Madras in Civil Revision Petition No. 3396 of 1981.                             AND                Civil Appeal No. 6211 of 1983          From the Judgment and Order dated the 5th November, 1982 of  the High  Court of Andhra Pradesh in Civil Revision Petition No. 2477 of 1982.                             WITH                Civil Appeal No. 1992 of 1982          From   the  Judgment   and  Order  dated  the  17th December, 1981 of the High Court of Madras in Civil Revision Petition No. 152 of 1981 .                             WITH                Civil Appeal No. 1959 of 19X2              From  the Judgment  and Order  dated  the  14th December, 1981 of the High Court of Madras in Civil Revision Petition No. 1630 of 1980.                             WITH                Civil Appeal No. 3668 of 1982       From  the Judgment  and Order  dated the 20th October, 1982 of  the High Court of Madras in Civil Revision Petition No. 4087 of 1982.                             WITH                Civil Appeal No. 2246 of 1982       From  the Judgment  and Order  dated the 5th November, 1981 of  the High Court ot Madras in Civil Revision Petition No. 1397 of 198(’                             AND                Civil Appeal No. 4012 of 1982       From  the Judgment  and Order dated the 23rd November, 1982 of  the High Court of Madras in Civil Revision Petition No. 3983 of 1981       Y.  S., Chitale and P. N. Ramalingam for the Appellant in Civil Appeal No. 1178 of 1984. 652           P.G. K. K Mani, V. shekher and P.R. Setharaman for the Respondents in Civil Appeal No. 1178 of 1984       A.K. Sen and A.T.M. Sampath for the Appellant in Civil Appeal No. 6211 of 1983.       T.V.S. Narasimhachari for the Respondent       K  Ramkumar for the Appellant in Civil Appeal No. 1992 of       A. T. M. Sampath for the Respondent.          A. S. Nambiar for the Appellant in Civil Appeal No. 1659 of 1982.              K  S. Ramamurthy,  and A.T.M.  Sampath, for the Appellant- in Civil Appeal No. 3668 of 1982.              C.  S. Vaidianathan  and  K.  K  Mani  for  the Respondents.       M.  G. Ramachandran, and A.V. Rangam for the Appellant in Civil Appeal No. 2246 of 1982.          T. S. Krishnamurthy Iyer for the Respondent.          T. S. Krishnamurth Iyer. and S. Balakrishna for the Appellant in Civil Appeal No. 4012 of 1984.       Padmanbhan  and D.N. Gupta for the Respondent in Civil Appeal No. 4012 of 1982.  The following Judgments were delivered       FAZAL  ALI, J.  These appeals  invlove more or less an identical point of law relating to the interpretation of the term ’wilful default’ appearing in the proviso to section 10 (2) of  the Tamil  Nadu Buil  dings (Lease and Rent Control)

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Act, 1960  (hereinafter referred  to as  the ’Act’)  coupled with the  Explanation which  seeks to  explain the intent Or the proviso.  We have heard counsel for the parties at great length and  a large  number of  authorities have  been cited before us in support of both the parties.       Before  we take up the points of law involved in these appeals we  would briefly  narrate the bare facts of each of these cases  in order  to test the correctness of the points argued before us. 653       In  Civil Appeal  No. 1178  of 1984,  the  respondent- landlord let  A out  the suit  premises No. 3-B, New No 2-B, Davidson Street, Broadway Madras, to the appellant-tenant on a monthly  rent of  Rs. 600  for  non-residential  use.  The appellant, despite  repeated reminders, did not pay the rent for the  period  from  October  1978  to  August  1979.  The respondent  filed  a  suit  on  2  12.79  for  evicting  the appellant   on two  grounds   wilful default  in payment  of rent, and  (2) material  acts  of  waste  committed  in  the building.       It may be mentioned here that before filing a suit for eviction of  the appellant, the respondent on 17.9.79 sent a two months‘ notice to the appellant. through his Advocate to clear up  the dues.  The appellant  on receipt of the notice paid up the amount of the arrears, amounting to Rs. 6,600 on 3.10.79, i.e.,  within the  stipulated period of two months. But, the  respondent contended  that in  view  of  the  past conduct of  theappellant he  was guilty  of  wilful  default within the meaning of proviso to s. 10 (2) of the Act.       So far as this appeal is concerned, as the entire rent had been  paid up  in pursuance  of the notice dated 17.9.79 even prior to the filing of the suit, it is manifest that on the date  of filing  of the  suit  no  cause  of  action  in presenti having  arisen, the suit should have been dismissed on this  short ground  alone as  being not  maintainable. As indicated above,  it was  not open  to  the  landlord  after having received  the entire  amount of arrears before filing of the  suit to  have filed  a suit  for past conduct of the tenant. This  appeal, therefore,  merits dismissal  on  this ground alone.       In  Civil Appeal  No. 6211  of 1983,  the  respondent- tenants were given the suit premises No. 171582, Ward B, Old corresponding No.  2, New  No. 5181582 Abid Road, Hyderabad, on a  monthly rent  of Rs. 225 which was, by mutual consent, increased to  Rs. 275  per month  in  the  year  1964.  From 1.7.66, the rent was again agreed to be increased to Rs. 300 per month.  The appellants-landlord filed a suit under s. 10 of the  Andhra Pradesh  Buildings (Lease,  Rent and Eviction Control) Act,  1960 on 12.11.71, against the respondents for eviction on three grounds; (1) wilful default by the tenants in payment  of rent for the months of September, October and November 1971  (total amount  being Rs. 900, (2) the tenants sublet the  premises to  one Hanumantha,  and (3)  that  the premises were required bona fide for their own use. However, during toe  pendency of  the matter,  the original landlords sold away  their interest  in the  property in favour of the present appellants before us and, therefore, the question of bona fied requirement abated there itself. 654      The Rent  Controller upheld  both the grounds of wilful default and  subletting. Aggrieved by the said decision, the respondents-tenant filed  an appeal to the Chief Judge, City Small Causes Court, Hyderabad and the learned Chief Judge by his judgment held that wilful default in payment of rent for the month  of September  1971 as  also the  question of  sub

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letting was  proved. Against  this  decision  of  the  Chief Judge, City  Small Causes,  the respondents filed a revision petition in  the High  Court. It  is not in dispute that the rent from  September, 1971  on wards  has not  been paid and that by  the time  the  eviction  petition  was  filed,  the default was  only for  the month of September 1971. The High Court agreed  with the  lower courts  with regard  to wilful default for  the month  of September,  1971 and reversed the finding with  regard to  subletting but  on  the  ground  of wilful default ordered eviction of the respondents.      In civil  Appeal No.  1992  of  1982,  the  respondent- landlord filed  an eviction  petition against the appellant- tenant on  the grounds  of wilful  default and  the premises needing repairs.  However, the second ground was not pressed and the  only point  which survived  for deter  mination was whether there  was any  wilful default  on the  part of  the appellant. The  brief facts  are that the appellant became a tenant under  the father  of the  respondent in  1953  at  a monthly rent  of Rs.  15  which  was  subsequently  mutually agreed to  be increased  to Rs. 49 per month. The respondent contended in  his  petition  that  the  appellant  became  a defaulter in  payment of the rent as he did not pay the rent for the  months of June 1977 to January 1978. The respondent also issued a notice on 16.1.78 demanding the dues amounting to Rs.  392. The  appellant sent a detailed reply on 30.1.78 alongwith a  Bank Draft  for Rs. 392 which was, however, not encashed by  the respondent  and returned  to the  appellant subsequent to  the filing  of an eviction petition which was filed on 11.8.1978.      The Rent  Controller found  the tenant  to be  a wilful defaulter and  consequently order  his eviction. However, on appeal the  Appellate Authority  reversed the finding of the Rent Controller  and accepted the plea of the tenant that as he was ill he was not able to pay the rent. In revision, the High Court  did not  agree with the finding of the Appellate Authority and  restored the  finding of the Rent Con troller and ordered  the eviction of the appellant, holding that the explanation offered  by the  tenant could not be accepted as his sons  were carrying on the business in the same premises and nothing  pre vented  them from  paying the  rent to  the landlord of the appellant was ill. 655       In  Civil Appeal  No. 1659  of 1982,  the  respondent- landlord filed  an eviction  petition against the appellant- tenant in  respect  of  a  nonresidential  premises  on  two grounds: (1)  wilful default  in payment of rent from 1.5.77 to 31,8.77,  and (2) bona fide requirement for personal use. The Rent  Controller, after  an equiry,  ordered eviction of the tenant  on both  the grounds and the Appellate Authority confirmed the  findings of the Rent Controller. The landlord issued a lawyer’s notice on 1.9.77 to the tenant to clear up the dues.  After receipt  of the  notice the tenant paid the rent of  two months’  only and  for the remaining two months the tenant could not offer any satisfactory explanation and, therefore, the  High  Court  in  revision  agreed  with  the findings of  both the  courts  below  in  regard  to  wilful default of  payment of  arrears of rent and ordered eviction of the tenant on this ground alone. The High Court, however, did not  agree with  the findings  of the  courts below with regard to  bona fide  requirement of  the landlord  and held that the  landlord  could  not  ask  for  a  non-residential portion for  residential purposes having leased it out for a non-residential purpose.       In  Civil Appeal  No. 3668 of 1982, the appellant took out the premises from the respondent for non-residential use

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on  a   monthly  rent   of   Rs.   350.   There   was   some misunderstanding between  the parties  over payment  of rent and as a result of which it was agreed that the tenant would deposit the  rent in the Bank. The respondent landlord filed an eviction  petition on  1.4.1980 in  the court of the Rent Controller, after  verifying from  the Bank, that the tenant had not  deposited the  rent for  the months  of January and February 1980,  thereby committing  a  wilful  default.  The authorities  below   found  against   the   arrangement   of depositing the  rent in the Bank and ordered the eviction of the appellant  on the  ground of  wilful default.  The  High Court upheld  the decision of the courts below and held that the appellant  had wilfully defaulted in the payment of rent and ordered the eviction of the appellant.       In  Civil Appeal  No. 2246  of 1982,  the  respondent- landladies let  out the premises to the tenant-appellant for non-residential use  on a  monthly  rent  of  Rs.  105.  The respondents filed  an eviction  petition on  2.11.76 against the tenant  on the  ground of wilful default for non-payment of rent  for the period from January 1976 to September 1976, i.e., for  a period  of 9  months.  But  before  filing  the eviction petition,  the respondents  on  6.7,1976  issued  a notice to  the tenant  to pay  the dues  and on  17.7.76 the appellant paid  a sum  of Rs.  630 which was accepted by the landladies without prejudice. The Rent 656 Controller found that the default in payment of rent was not wilful  and  therefore  dismissed  the  appl.cation  of  the landladies. On  appeal, the Appellate Authority reversed the finding of  the Rent  Controller and  held that the default, was wilful.  In revision,  the High Court did not agree with the contention  of the  appellant that  he  was  not  wilful defaulter  as  immediately  after  filing  of  the  eviction petition he  had paid  the entire  arrears even  before  the serving of  summons The  High Court  held that  there was no satisfactory explanation  by the  tenant for  nonpayment  of rent for  the period  from January  to June  1976 before the issue of  notice Even  after the  payment of rent the tenant committed further default till the petition for eviction was filed on  2.11.76. The  high Court,  therefore,  upheld  the finding of  the Appellate  Authority and ordered eviction of the tenant on the ground of wilful default.       In  civil appeal  No. 4012 of ’ 1982, the appellant is in occupation of the residential premises bearing No 17 (New No 59),  Burkit Road  T. Nagar,  Madras on a monthly rent of Rs. 325  payable according  to English  calendar month.  The respondent filled an eviction petition against the appellant on the  ground of  wilful default  and bona fide requirement for her  own occupation.  It was  stated on  behalf  of  the respondent-landlady  that  the  appellant  committed  wilful default in  payment of rent from June 1976 onwards and after repeated demands  a sum  of Rs.  1000 was  paid  by  him  on 1.4.1977. He had paid rent for five months to the Income Tax Department on  behalf of  the  respondent  but  he  did  not produce any  receipt evidencing  payment to  the Income  Tax Department. Assuming  that the  appellant had  made the said payment, the respondent further contended that from February 1977 to  July 1978  the appellant  was in  arrears,  thereby committing a  wilful default.  The Rent  Controller did  not agree with  the contentions  of the respondent and held that the default  was not  wilful and  the  requirement  for  own Occupation of  the landlay was not bona fide. On appeal, the Appellate Court  came to  the conclusion that the tenant had committed wilful  default in  payment of  rent from May 1976 onwards as  on 1.4.77  and from December 1976 as on 10.4.77.

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However, the  appellate authority  was of  the view that the respondent had not been able to prove her case for bona fide requirement. But,  on the  around  of  wilful  default,  the eviction of the appellant was ordered. In reviston, the High Court agreed  with the  findings of  the Appellate Court and confirmed the  eviction of  the appellant  on the  ground of wilful default.       From  a detailed  survey  of  the  provisions  of  the various Rent Acts prevailing in the States and various Union Territories of our 657 country, it  appears that  the provisions regarding eviction for default  A in payment of rent are not uniform and differ from State  to State.  Some  Acts  do  not  mention  ‘wilful default’ at  all, some  mention it  in a negative form while some put it in an affirmative form. To cut the matter short, from a  review of  the various  Rent Acts  the position that emerges is  that the  provisions relating  to  eviction  are couched in three different types of default-      (1)   Acts  which expressly  mention  ’wilful  default’           without defining the same,      (2)   Acts  which do  not  mention  the  words  ’wilful           default’ at all but confer a right on the landlord           to evict  the tenant  on pure  and simple  default           after a  certain period  of time when the rent has           become due,  which is  also different in different           States,      (3)  Acts which use the expression ’wilful default’ but           in a  negative form  rather than in an affirmative           form. D        These   are  the  A.P.  Buildings  (Lea5e,  Rent  and Eviction) Control Act of 1960, The Orissa House Rent Control Act, 1967  and  the  Pondicherry  Buildings  (Lease  &  Rent Control) Act,  1969 (hereinafter  referred to  as the  ’A P. Act, ’Orissa  Act’ and  ’Pondicherry Act’  respectively) The last category  of the  Acts is  the Tamil Nadu Act, which is the Statute in question and which makes a marked improvement by broadening  the ambit  of ’wilful default’ in the proviso to s.  10 (2)  which is  further clarified  by virtue of the Explanation added  to the said proviso by Act No 23 of 1973. There are  other Rent Acts which not only use the expression ’wilful default’ but which also give a sort OF a facility to a tenant even for an ordinary default to pay the entire rent together with  interest, on  payment of  which the  suit for eviction  is   dismissed  or,  at  any  rate,  they  contain provisions by  which even  if a  suit for eviction is filed, the tenant  is required  to pay  the entire arrears of rent, costs and  interest, failing which his defence is struck out and the suit for eviction is decreed automatically.       In these circumstances, for the purpose of the present cases, it  is not  necessary for us to make a roving enquiry into or  carry on a detailed survey of the Acts which do not use the  term ’wilful default’. We might usefully refer only to those Acts which contain the term ’wilful default’ either in a  negative or in a positive form. These Acts, as already indicated, are  the A.P.,  Orissa, Pondicherry and the Tamil Nadu Acts.  Though we  are concerned  mainly with  the Tamil Nadu 658 Act yet  in order to understand the contextual background of the words  ’wilful default’ and its proper setting, we might briefly examine  the relevant  provisions of  the  aforesaid Acts. Section  10 (2)  of the A.P. Act is the only provision which confers  protection to  the tenant from eviction under certain conditions. Proviso to that sub-section   runs thus:

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            "Provided that in any case falling under clause      (i), if  the Controller  is satisfied that the tenant’s      default to  pay or  tender rent  was not wilful, he may      notwithstanding anything in section 11, give the tenant      a reasonable  time, not  exceeding fifteen days, to pay      or tender the rent due by him to the landlord up to the      date of  such payment  or tender and on such payment or      tender, the application shall be rejected."        It   may  be   noticed  that   although  the  default contemplated by  the Act  is wilful yet it has been put in a negative form  which undoubtedly  gives sufficient leeway to the tenant  to get  out of  the  rigours  of  the  statutory provision. The  proviso to  s.7 (2J  of the  Orissa  Act  is similarly worded  and the  relevant portion  of  which  runs thus:              "Provided that in any case falling under clause      (i) if  the Controller  is satisfied  that the tenant’s      default to pay or tender rent was not wilful."      Pondicherry Act  is another statute which also contains the word  ’wilful’ in  a negative form, the relevant portion of which runs thus:              "Provided that in any case falling under clause      (i) if  the Controller  is satisfied  that the tenant’s      default to pay of tender rent was not wilful..."       The  aforesaid Acts  undoubtedly  contemplate  that  a default simpliciter  would not  be sufficient  to evict  the tenant but it must further be shown that the default was not wilful. The  Act, however  is silent  on the  mode  and  the manner in  which a court may decide as to what is wilful and what is  not wilful. Thus, the Act has left it to the courts to decide  this question.  So far  as the  Tamil Nadu Act is concerned,  it   clearly  defines  as  to  what  is  ’wilful default’. Proviso to s. 10 (2) of the Act runs thus:              "Provided that in any case falling under clause      (i) if  the Controller  is satisfied  that the tenant’s      default to  pay or  tender rent was not wilful, he may,      notwithstanding anything 659      contained in  section 11,  give the tenant a reasonable      time, t  not exceeding  fifteen days,  to pay or tender      the rent  due by  him to the landlord up to the date of      such payment  or tender  and on such payment or tender,      the application shall be rejected."        This proviso was clarified by an Explanation added to it by Act No. 23 of 1973 which provides a clear criterion to determine as  to what  is wilful default and what is not. in this connection, it was submitted by counsel for the tenants that despite  the Explanation  it is open to the Court on an appraisement of  the circumstances of each case to determine whether or  not the  default was  wilful and in doing, so it cannot be  guided wholly and solely by the Explanation which is merely  clarificatory in  nature. If  the  Court  in  the circumstances of  each case  finds that  the default  is not wilful  then  it  can  come  to  this  finding  despite  the Explanation. On  the other hand, the argument ot the counsel for  the   landlords  is   that  the  very  purpose  of  the Explanation is  to briny about uniformity in court decisions by laying  down a  conclusive yardstick  in the shape of the Explanation which  says that  a default would be wilful only if the  landlord gives  two months’ notice to the tenant and the tenant  does not  pay the  rent after the expiry of this period. In  other words,  the argument  seems to be that the Explanation is  to be read into the proviso so that the word ’wilful’  will   have  to  be  defined  and  interpreted  in accordance  with   the  criterion  laid  down  by  the  said

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Explanation,  i.e.,  ’issue  of  two  months’  notice.’  The arguments merits  consideration but  before  coming  to  any conclusion it  may be  necessary for us to examine the exact meaning  of   the  words   ’Wilful  default’   as  also  the interpretation  and   the  scope  of  the  Proviso  and  the Explanation. Prima  facie, there  seems to  be some force in the argument  of the counsel for the tenants that unless the conditions of the Explanation are fulfilled, whatever may be the nature  of the  default, it cannot be a ’wilful default’ as contemplated by the Proviso.       Before, however, going into this question further, let us find  out the  real  meaning  and  content  of  the  word ’wilful’ or  the words  ’wilful default’.  In  the  book  ’A Dictionary of  Law’ by  L.B. Curzon,  at page  361 the words ’wilful’ and ’wilful default’ have been defined thus:              ’Wilful’-deliberate conduct of .l person who is      a free  agent, knows what he is doing and intends to do      what he is doing. 660                  ’Wilful default’-Either  a consciousness of      negligence or  breach of duty; or a recklessness in the      performance of a duty. In other words, ’wilful default’      would mean a deliberate and   intentional   default  knowing   full   well   the   legal consequences thereof.                In Words and Phrases’, Volume 11 A (Permanent      Edition) at  page  268  the  word  ’default’  has  been      defined as  the non-performance of a duty, a failure to      perform a  legal duty  or an  omission to  do something      required. In  volume 45  of ’Words & Phrases’, the word      ’wilful’ has been very clearly defined thus:                   ’Wilful’-intentional;  not  incidental  or involuntary: -      -    done  intentionally,   knowingly,  and  purposely,           without justifiable  excuse as  distinguished from           an act  done carelessly; thoughtlessly, heedlessly           or inadvertently:      -    in common  parlance word ’wilful’ is used in sense           of intentional,  as distinguished  from accidental           or involuntary.       P. 296 -   "Wilful"  refers  to  act  consciously  and           deliberately done  and signifies course of conduct           marked by  exercise of  volition rather than which           is accidental, negligent or involuntary.       In  Volume III  of Webster’s  Third New  International Dictionary at  page 2617, the word ’wilful’ has been defined thus:            "governed  by will  without yielding to reason or      with out  regard to  reason; obstinately  or perversely      self-willed."      The word  ’default’ has  been  defined  in  Vol.  I  of Webster’s Third  New International  Dictionary at  page  590 thus;            "to  fail to  fulfil a  contract or agreement, to      accept a  responsibility; to  fail to  meet a financial      obligation."       In  Black’s Law Dictionary (4th Edn.) at page 1773 the word ’wilful’ has been defined thus:            "Wilfulness"  implies an  act done  intentionally      and designedly;  a conscious  failure to  observe care;      Conscious; knowing; done with stubborn purpose, but not      with malice.            The  word "reckless" as applied to negligence, is      the legal equivalent of "willful" or "Wanton". 661

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    Thus, a  consensus of  the meaning of the words ’wilful default’ appears  to indicate  that default  in order  to be wilful  must  be  intentional,  deliberate,  calculated  and conscious, with full knowledge of legal consequences flowing therefrom. Taking for instance a case where a tenant commits default after  default despite oral demands or reminders and fails to  pay the  rent without any just or lawful cause, it cannot be  said that  he is  not guilty  of  wilful  default because such  a course  of  conduct  manifestly  amounts  to wilful default as contemplated either by the Act or by other Acts referred to above.      The next  question that  arises for consideration is as to what  is the  scope of a proviso and what is the ambit of an Explanation either to a proviso or to any other statutory provision. We  shall first  take  up  the  question  of  the nature, scope  and extent of a proviso. The well established rule of  interpretation of  a proviso  is that a proviso may have three  separate functions. Normally, a proviso is meant to be an exception to something within the main enactment or to qualify  something enacted  therein  which  but  for  the proviso would  be within  the purview  of the  enactment  In other words,  a proviso  cannot be  torn apart from the main enactment nor can it be used to nullify or set at naught the real object of the main enactment.      Craies in  his book  ’Statute  Law’  (7th  Edn.)  while explaining the  purpose and  import of  a proviso  states at page 218 thus:           "The effect of an excepting or qualifying proviso,      according to  the ordinary rules of construction, is to      except out  of the  preceding portion of the enactment,      or to  qualify something enacted therein, which but for      the  proviso   would   be   within   it...The   natural      presumption is  that, but for the proviso, the enacting      part of  the section  would have  included the subject-      matter of the proviso."      Odgers in  ’Construction of  Deeds and Statutes’ (Fifth Edn.) while  referring to  the scope  of a proviso mentioned the following ingredients:      P. 317  "Provisos-These are  clauses  of  exception  or           qualification in  an Act,  excepting something out           of, or  qualifying  something  in,  the  enactment           which, but for the proviso, would be within it."      P. 318  "Though framed  as a proviso, such a clause may           exceptionally have  the effect  of  a  substantive           enactment. " 662      Sarathi in  ’Interpretation of  Statutes’ at pages 294- 295 has  collected the  following principles  in regard to a proviso:-      (a)  When one  finds a proviso to a section the natural           presumption is  that, but  for  the  proviso,  the           enacting part  of the  section would have included           the subject-matter of the proviso.      (b)  A proviso  must be construed with reference to the           preceding parts  of the  clause  to  which  it  is           appended.      (c)  Where the  proviso  is  directly  repugnant  to  a           section, the  proviso shall  stand and  be held  a           repeal of  the section  as the  proviso speaks the           later intention of the makers.      (d)  Where the  section is  doubtful, a  proviso may be           used as a guide to its interpretation; but when it           is clear,  a proviso cannot imply the existence of           words of which there is no trace in the section.      (e)  The proviso is subordinate to the main section.

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    (f)  A proviso does not enlarge an enactment except for           compelling reasons.      (g)  Sometimes an  unnecessary proviso  is inserted  by           way of abundant caution.      (h)  A construction  placed upon a proviso which brings           it into  general harmony with the terms of section           should prevail.      (i)  When a  proviso is repugnant to the enacting part,           the proviso  will not  prevail over  the  absolute           terms of  a later  Act  directed  to  be  read  as           supplemental to the earlier one.      (j)  A proviso  may  sometimes  contain  a  substantive           provision."      In the case of Local Government Board v. South Stoneham Union,(’) Lord Macnaghten made the following observation:           "I think  the proviso  is a  qualification of  the      preceding enactment,  which is  expressed in  terms too      general to be quite accurate."      In   Ishverlal    Thakorelal   Almaula    v.   Motibhai Nagjibhai(2) it  was held  that the main object of a proviso is merely  to  qualify  the  main  enactment.  In  Madras  & Southern   Maharatta    Railway   Co.    Ltd.   v.   Bezwada Municipality,(3) Lord Macmillan observed thus: (1) [1909] A C. 57. (2) [1966] 1 SCR 367. (3) ATR 1944 P.C. 71. 663      "The proper  function of  a proviso is to except and to      deal with  a case which would otherwise fall within the      general language  of the main enactment, and its effect      is confined to that case."      The  above   case  was   approved  by   this  Court  in Commissioner Of  Income Tax, Mysore, etc. v. Indo Mercantile Bank Ltd.,(l)  where Kapur, J. held that the proper function of a  proviso was  merely to  qualify the  generality of the main enactment  by providing an exception and taking out, as it were,  from the  main enactment  a portion which, but for the proviso,  would fall  within the main enactment. In Shah Bhojraj Kuverji  Oil Mills  &  Ginning  Factory  v.  Subhash Chandra Yograj  Sinha,(2) Hidayatullah,  J, as  he then was, very aptly  and succinctly  indicated the  parametres  of  a proviso thus:           "As a  general rule,  a proviso  is  added  to  an      enactment to  qualify or create an exception to what is      in the  enactment, and  ordinarily, a  proviso  is  not      interpreted as stating a general rule."      In West  Derby v.  Metropolitan Life  Assurance  Co.(3) while guarding  against the  danger of  interpretation of  a proviso, Lord Watson observed thus:            "a very dangerous and certainly unusual course to      import legislation  from a  proviso wholesale  into the      body of the statute."      A very apt description and extent of a provio was given by Lord  Oreburn in  Rhodda Urban  District Council  v. Taff Vale Railway  Co.(q) where it was pointed out that insertion of a proviso by the draftsman is not always strictly adhered to its  legitimate use  and at  times a  section worded as a proviso may  wholly  or  partly  be  in  substance  a  fresh enactment adding  to and  not merely excepting something out of or  qualifying what  goes before. To the same effect is a later decision  of the same Court in Jennings add Another v. Kelly(5) where it was observed:              "We must now come to the proviso, for there is,      I think,  no doubt  that in  the  construction  of  the      section the

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    (1) [1959] 2 supp. SCR 256.      (2) [1962] 2 SCR 159.      (3) [1897] AC 647.      (4) [l909] AC 253.      (5) [1940] AC 206. 664      whole of  it must  be read  and a consistent meaning if      possible given  to every  part  of  it  The  words  are      "provided that  such licence  shall be granted only for      premises situate  in the  ward  or  district  electoral      division in which such increase in population has taken      place". There seems to be no doubt that the words "such      increase in  population" refer  to the  increase of not      less than  25 per  cent of  the population mentioned in      the opening words of the section "      While interpreting a proviso care must be taken that it is used  to remove  special cases from the general enactment and provide for them separately.      In short,  generally speaking, a proviso is intended to limit the  enacted provision so as to except something which would have  other wise  been within it or in some measure to modify the  enacting clause.  Sometimes  a  proviso  may  be embedded in  the main provision and becomes an integral part of it so as to amount to a substantive provision itself.      Apart from  the authorities  referred  to  above,  this Court has  in a  long  course  of  decisions  explained  and adumbrated the  various shades;  aspects and  elements of  a proviso. In   State  of  Rajasthan  v.  Leela  Jain,(’)  the following observations were made:           "So far  as a general principle of construction of      a proviso is concerned, it has been broadly stated that      the function  of a proviso is to limit the main part of      the section  and carve  out something which but for the      proviso would have been within the operative part."      In the case of Sales Tax Officer, Circle 1, Jabalpur v. Hanuman Prasad(2), Bhargava, J. Observed thus:           "It is  well-recognised that a proviso is added to      a principle  clause primarily with the object of taking      out of  the scope  of that  principal  clause  what  is      included in  it and what the legislature desires should      be excluded."              In Commissioner of Commercial Taxes and Ors. v. R.S. Jhaver  and Ors.,(3)  this  Court  made  the  following observations:     (1) [1965]1 S C.R. 276.     (2) [1967] I S.C.R. 831.     (3) [1968]1 S.C.R. 148. 665          "Generally speaking, it is true that the proviso is      an exception to the main part of the section; but it is      recognised that in exceptional cases a proviso may be a      substantive provision itself "       In Dwarka Prasad v. Dwarka Das Saraf,(l) Krishan Iyer, J. speaking for the Court observed thus: B           "There is some validity in submission but if, on a      fair construction,  the principal provision is clear, a      proviso can not expand or limit it. Sometimes a proviso      is engrafted  by an  apprehensive draftsman  to  remove      possible doubts,  to make  matters plain,  to light  up      ambiguous edges. Here, such is the case           If the  rule of construction is that prima facie a      proviso should  be limited  in  its  operation  to  the      subject-matter of  the enacting  clause, the  stand  we      have taken  is sound.  To expand  the enacting  clause,      inflated by  the proviso,  sins against the fundamental

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    rule of  construction that a proviso must be considered      in relation  to the principal matter to which it stands      as a  proviso. A  proviso ordinarily  is but a proviso,      although the  golden rule is to read the whole section,      inclusive of  the proviso,  in such  manner  that  they      mutually throw  light on  each other  and result  in  a      harmonious construction.      In Hiralal  Rattanlal etc. v. Staie of U.P. and Anr.(2) etc. this Court made the following observations:           "Ordinarily, a proviso to a section is intended to      take out  a  part  of  the  main  section  for  special      treatment. It  is not  expected to enlarge the scope of      the main  section. But  cases have arisen in which this      Court has  held that  despite the fact that a provision      is called  proviso, it  is really  a separate provision      and the so-called proviso has substantially altered the      main section."           We need not multiply authorities after authorities      on this  point because  the legal  position seems to be      clearly and  manifestly well  established. To sum up, a      proviso may serve four different purposes:      (1) [1976]1 S.C.R. 128.      (2) [1973] 1 S.C.C.216. 666      (1)  qualifying or  excepting certain  provisions  from           the main enactment;      (2)  it may  entirely change  the very  concept of  the           intendment  of   the  enactment  by  insisting  on           certain mandatory  conditions to  be fulfilled  in           order to make the enactment workable;      (3)  it may  be so  embedded in  the Act  itself as  to           become an  integral part of the enactment and thus           acquire the  tenor and  colour of  the substantive           enactment itself; and (4) it may be used merely to           act as  an optional  addenda to the enactment with           the sole  object of explaining the real intendment           of the statutory provision.           These seem to be by and large the main purport and parameters of a proviso.      So far  as the Act in question is concerned, the matter does not rest only on the question of wilful default, but by an amendment  (Act No.  23 of  1973) an  Explanation, in the following terms,  was added to the proviso to section 10 (2) of the Act:           "Explanation-For the  purpose of this sub-section,      default to  pay or  tender rent  shall be  construed as      wilful, if  the default by the tenant in the payment or      tender of rent continues after the issue of two months’      notice by the landlord claiming the rent."          We have now to consider as to what is the impact of the Explanation on the proviso which deals with the question of wilful  default. Before, however, we embark on an enquiry into  this   difficult  and   delicate  question,   we  must appreciate the  intent,  purpose  and  legal  effect  of  an Explanation. It  is now  well settled  that  an  Explanation added  to   a  statutory  provision  is  not  a  substantive provision in  any sense of the term but as the plain meaning of the  word itself  shows it  is merely meant to explain or clarify certain  ambiguities which  may have  crept  in  the statutory provision. Sarathi in ’Interpretation of Statutes’ while dwelling  on the  various aspects  of  an  Explanation observes as follows:      "(a) The  object of an explanation is to understand the           Act in the light of the explanation. 667

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    (b)  It does  not ordinarily  enlarge the  scope of the           original A  section which  it explains,  but  only           makes the meaning clear beyond dispute."                                                     (P. 329)      Swarup in  ’Legislation and  Interpretation’ very aptly sums up the scope and effect of an Explanation thus:           "Sometimes an  explanation is  appended to  stress      upon a  particular thing  which  ordinarily  would  not      appear clearly  from the provisions of the section. The      proper function  of an  explanation is to make plain or      elucidate what  is enacted in the substantive provision      and  not   to  add   or  substract  from  it.  Thus  an      explanation does  not either  restrict  or  extend  the      enacting part;  it does  not enlarge or narrow down the      scope of  the original  section that  it is supposed to      explain  ..   The  Explanation   must  be   interpreted      according to its own tenor; that it is meant to explain      and not vice versa."                                              (P.P. 297-298.)            Bindra in ’Interpretation of Statutes’ (5th Edn.) at page 67 states thus:           "An explanation  does not enlarge the scope of the      original section  that it is supposed to explain. It is      axiomatic that  an explanation  only explains  and does      not  expand  or  add  to  the  scope  of  the  original      section.. The  purpose of  an explanation  is, however,      not to  limit the  scope o  the  main  provision..  The      construction of  the explanation  must depend  upon its      terms, and  no theory of its purpose can be entertained      unless it  is to be inferred from the language used. An      ’explanation’ must  be interpreted according to its own      tenor ."      The principles  laid down  by the aforesaid authors are fully supported  by various  authorities of  this Court.  To quote  only   a  few,   in  Burmah  Shell  Oil  Storage  and Distributing Co.  Of India  Ltd. and  Anr. v. Commercial Tax Officer  and   Ors.(l)  a   Constitution   Bench   decision, Hidayatullah, J. speaking for the Court. Observed thus:           "Now,  the   Explanation   must   be   interpreted      according to  its own tenor, and it is meant to explain      cl.(1)(a)of the      (1) [1961] I S.C.R. 902. 668      Article and  not vice  versa. It is an error to explain      the Explanation  with the  aid of  the Article, because      this reverses their roles."      In Bihta  Cooperative Development  Cane Marketing Union Ltd. and  Anr. v  The Bank  of Bihar and Ors(i)., this Court observed thus:           "The Explanation  must be  read so as to harmonise      with and clear up any ambiguity in the main section, It      should not be so construed as to widen the ambit of the      section."      In  Hiralal   Rattanlal’s  case   (supra),  this  Court observed thus:           "On the  basis of  the language of the Explanation      this Court  held that  it did  not widen  the scope  of      clause (c)  But from what has been said in the case, it      is clear that if on a true reading of‘an Explanation it      appears that  it has  widened the  scope  of  the  main      section,  effect   be  given   to  legislative   intent      notwithstanding the  fact that  the  Legislature  named      that provision as an Explanation."      In Dattatraya  Govind Mahajan  and  Ors.  v.  State  of Maharashtra and Anr(2)., Bhagwati, J. Observed thus:

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         "It is  true that  the  orthodox  function  of  an      explanation is to explain the meaning and effect of the      main provision  to which  it is  an explanation  and to      clear up any doubt or ambiguity in it.. Therefore, even      though the  provision in  question has  been called  an      Explanation, we must construe it according to its plain      language and not on any a priori considerations."      Thus, from  a conspectus of the authorities referred to above, it is manifest that the object of an Explanation to a statutory provision is-      (a)  to explain  the meaning  and intendment of the Act           itself,      (b)  where there  is any  obscurity or vagueness in the           main enactment,  to clarify the same so a- to make           it consistent  with the  dominant object  which it           seems to subserve,      (1) [1967]1 S.C.R. 848.      (2) [l977]2 S C.R. 790. 669      (c)  to provide  an additional  support to the dominant           object of  the Act  in order to make it meaningful           and purposeful,      (d)  an Explanation cannot in any way interfere with or           change the enactment or any part thereof but where           some gap is left which is relevant for the purpose           of the  Explanation,  in  order  to  suppress  the           mischief and  advance the object of the Act it can           help or  assist the Court in interpreting the true           purport and intendment of the enactment, and      (e)  it cannot,  however, take  away a  statutory right           with which  any person  under a  statute has  been           clothed or  set at naught the working of an Act by           becoming an hindrance in the interpretation of the           same.      Having, therefore,  fully discussed  the main scope and ambit of  a proviso and an Explanation, we shall now proceed to elucidate  the various  provisions of  the Act  and other Acts. We  have already  discussed that although almost every State has  its own Rent Act, neither the Explanation nor the statutory clause  concerning the  term ’wilful  default’  is mentained therein  These Acts  seem to  proceed only  on the simple  word   ’default’  and   perhaps  to  buttress  their intention they have laid down certain guidelines to indicate the grounds  of ejectment  wherever a  default takes  place. Looking generally  at such  Acts, they  seem to  have  first provided statutorily  a particular  date or  time  when  the tenant on  being inducted  under the contract of tenancy, is to pay  the rent. Such a provision may or may not be against the contract  of the tenancy and if it is to that extent, it overrides the  contract. This,  therefore, gives  sufficient notice to  any tenant  inducted in any premises that he must pay the rent according to the yard-stick set out by the Act, failing which he runs the risk of being evicted for default. Some Acts,  however, have  provided a  particular number  of defaults to  enable the Rent Controller or Court to find out whether such  a default would entitle the landlord to get an order of eviction. There are some other Acts which have made rather ingenious  and, if  we may say so, apt provisions for expediting the  process of  eviction in  case of  default by providing that whenever a suit for eviction is filed against a tenant  on the  ground of  default, the tenant in order to show his  bona fides  must first  deposit the  entire  rent, arrears and  cost in  the court of the Rent Controller where the action  is filed  on the  very first  date  of  hearing, failing which the court or the authority concern-

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670 ed would be fully justified in striking down the defence and passing an  order of  eviction then  and there. The dominant object of  such a  procedure is  to put the tenants on their guard. It  is true that such provisions are rather harsh but if a  tenant goes  on defaulting  then there can be no other remedy but  to make  him pay the rent punctually unless some drastic step  is taken. These Acts, therefore, strike a just balance between  the rights  of a  landlord and  those of  a tenant. For deciding these cases, it is not necessary for us to go  either into  the  ethics  or  philosophy  of  such  a provision because  we are  concerned  with  statutes  having different kinds of provisions.      With this  little preface  we  would  now  examine  the working and relevant provisions of the Act alongwith similar provisions contained  in the  other three  Acts, viz., A.P., Orissa, and  Pondicherry Acts,  which  are  almost  in  pari materia the  proviso to  s. 10  (2) of  the  Act.  The  only difference between  the Act and the other Acts is that where as an  Explanation is  added to  the proviso to s. 10 (2) of the  Act,   no  such  Explanation  has  been  added  to  the provisions of  the other  three Acts;  hence we  have now to consider  the  combined  effect  of  the  proviso  taken  in conjunction with the Explanation.      We may,  therefore, extract  the Explanation  again  to find out  what it  really means  and to  what extent does it affect the provisions of the Proviso:             Explanation-For the purpose of this sub-section,      default to  pay or  tender rent  shall be  construed as      wilful, if  the default by the tenant in the payment or      tender of rent continues after the issue of two months’      notice by the landlord claiming the rent;"      If  we   analyse  the   various  concomitants   of  the Explanation, the position seems to be that-      (a)  there should be a default to pay or tender rent,      (b)  the  default   should  continue   even  after  the           landlord has  issued two  months’ notice  claiming           the arrears or rent,      (c)  if, despite  notice, the  arrears are not paid the           tenant is  said to have committed a wilful default           and consequently liable to be evicted forthwith.      The question is; do these three conditions whittle down the effect  of the  proviso or  merely seeks  to explain the intendment of  a wilful  default ?  One view  which  may  be possible and  which form  the basis  of the  argument of the connsel for the tenants is that mere non- 671 payment of arrears of rent after issue of two months’ notice cannot in  A all  circumstances automatically  amount  to  a wilful default if the nonpayment does not fulfil the various ingredients pointed  out  by  us  while  defining  the  term ’Wilful default’.  The other  view which  has been canvassed before us  by the  counsel for  landlords is that in view of the Explanation  once it  is proved  that after issue of two months’ notice if the tenant does not pay the arrears within the stipulated  period of  two months  he is  liable  to  be ejected  straightaway.   Another  view   is  that   such  an interpretation would  be extremely harsh and penal in nature because if,  after receipt  of the notice, the tenant is not able to  pay the  arrears due  to circumstances  beyond  his control, of  which the court is satisfied it will be putting a serious premium or handicap on the right of the tenant. In the same token, it was argued that if such an interpretation is put  on the Explanation then the entire provisions of the Proviso  become  otiose  thus  rendering  the  said  Proviso

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nugatory.      Another aspect  that must  be stressed at this stage is that where  a tenant  has committed  default  after  default without any lawful or reasonable cause and the said defaults contain  all  the  qualities  of  a  wilful  default,  viz., deliberate, intentional, calculated and conscious, should he be given  a further  chance of  locus paenitentiae  ?  After hearing counsel  for the  parties at  great length,  we feel that although  the question  is difficult  one yet it is not beyond solution.  If we  keep the objects of the proviso and the Explanation  separate, there  would be  no difficulty in deciding these cases.      To begin  with, s. 13 (2) (i) of the Act lays down that where the  Controller is  satisfied that  the tenant has not paid or tendered the rent within 15 days after the expiry of the time fixed in the Agreement of tenancy or in the absence of any  such Agreement,  by the  last date of the month next following that  for which  the rent  is payable, he (tenant) undoubtedly commits  a default.  Two factors mentioned in s. 10 (2) (i) seem to give a clear notice to a tenant as to the mode of payment as also the last date by which he is legally supposed to  pay the  rent. This,  however, does not put the matter beyond controversy because before passing an order of eviction under  the proviso, it must also be proved that the default was  wilful and  if the Controller is of the opinion that the  default in the circumstances and facts of the case was not  wilful, in the sense that it did not contain any of the qualities or attributes of a wilful default as indicated by us  above, he  may give the tenant a reasonable time, not exceeding 15  days, to  pay the  entire rent  and if this is complied with, 672 the application  for ejectment  would  stand  rejected.  The difficulty, however,  is created  by the  Explanation  which says that once a land lord gives a two months’ notice to his tenant for  paying  the  arrears  of  rent  but  the  tenant continues in  default even  thereafter, then he is liable to be evicted.  There is  a good deal of force in this argument which has  its  own  advantages.  In  the  first  place,  it protects the court from going into the intricate question as to  what  is  a  wilful  default  and  whether  or  not  the conditions of a wilful default have been satisfied which, if permitted would differ from case to case and court to court. But the  difficulty is  that if such a blanket ban is put on the court  for not  examining the question of wilful default once  the  conditions  laid  down  in  the  Explanation  are satisfied  then   it  would   undoubtedly  lead  to  serious injustice t-l  the tenant.  A subsidiary consequence of such an interpretation  would be  that even  though  the  tenant, after receipt  of the  notice, may  be wanting  to  pay  the arrears of  rent but is unable to do so because of unforseen circumstances   like, death,  accident, robbery, etc., which prevent  him   from  paying   the  arrears,  yet  under  the Explanation he has to be evicted.      Another  view   which,  in   our  opinion,  is  a  more acceptable one  and flows  from the actual words used by the proviso is  that where the Explanation does not apply in the sense that  the landlord  has not issued two months’ notice, it will  be for  the Court to determine in each case whether the default is wilful having regard to the tests laid  down  by us  and if  the Court finds that default is wilful then a  decree  for  eviction  can  be  passed  without  any difficulty.      Another difficulty  in accepting  the first view, viz., if two  months notice  is not  given, the tenant must not be

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presumed to  be a  wilful defaulter,  is that in such a case each landlord would have to maintain  a separate office so that after every default a two months’ notice should  be given  and if no notice is given no action can be  taken against  a tenant. We are unable to place such an unreasonable  restriction on  the landlord  to  give  two months’ notice  after every  default which may or may not be possible in  every case.  A correct  interpretation, in  our opinion, would be that where-      (1)  no notice,  as required  by  the  Explanation,  is           given to  the tenant,  the Controller or the court           can certainly  examine the  question  whether  the           default has  been wilful  and to  such a  case the           Explanation would have no application, 673      (2)  where the  landlord chooses  to issue  two months’           notice and the rent is not paid then that would be           a conclusive  proof of  the default  being  wilful           unless  the  tenant  proves  his  incapability  of           paying the  rent due to unavoidable circumstances.           B      The argument of the counsel for landlords was that even if a  notice under  the Explanation  is given  that does not take away  the jurisdiction  of  the  proviso  to  determine whether or  not the  default has  been wilful if it contains the qualities  and attributes referred to above because what the Explanation does is merely to incorporate an instance of a wilful  default and  is not  conclusive on  the point  and would have  to be construed by the court in conjunction with the conditions  mentioned in  the proviso.  We are,  however unable to  go to  this  extreme  extent  because  that  will actually thwart  the object  of the  Explanation. As we read the Explanation,  it does not at all take away the mandatory duty cast  on the  Controller in  the proviso to decide if a default is wilful or not. Indeed, if the landlord chooses to give two  months’ notice  to his  tenant and he does not pay the rent, then, in the absence of substantial and compelling reasons, the  controller or  the court can certainly presume that  the   default  is   wilful  and   order  his  eviction straightaway. We  are unable to accept the view that whether two months’  notice for  payment of rent is given or not, it will always  be open  to the Controller under the proviso to determine the  question of wilful default because that would render the  very object  of Explanation otiose and nugatory. We express our view in the matter in the following terms:      (1)  Where no  notice is given by the landlord in terms           of the  Explanation, the Controller, having regard           to the  four conditions  spelt out  by us  has the           undoubted discretion to examine the question as to           whether or not the default committed by the tenant           is wilful.  If he feels that any of the conditions           mentioned by us is lacking or that the default was           due to  some unforeseen circumstances, he may give           the tenant  a  chance  of  locus  paenitentiae  by           giving a  reasonable time,  which the statute puts           at 15  days, and  if within  that time  the tenant           pays the rent, the application for ejectment would           have to be rejected.      (2)  If the landlord chooses to give two months’ notice           to the  tenant to clear up the dues and the tenant           does not 674      pay the  dues within  the stipulated time of the notice      then the  Controller would have no discretion to decide      the question  of wilful  default because such a conduct

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    of the  tenant would  itself be  presumed to  be wilful      default unless  he  shows  that  he  was  prevented  by      sufficient cause or circumstances beyond his control in      honouring the notice sent by the landlord.      We would,  however, refer  to  some  case  law  on  the question of wilful default as interpreted by the Madras High Court because  there appear  to be three  decisions  of  the Madras High  Court  taking  some  what  contrary  views.  In Rajeswari v.  Vasumal Lalchand(1)  it  was  held  that  non- payment of  rent amounted  to such  supine  and  callous  in difference on  the part  of the  tenant as  to amount  to  a wilful default.  However, the  learned Judge does not appear to have  noticed the  effect of the Explanation to s. 10 (2) introduced in  1973. This  decision undoubtedly supports the view that  a wilful  default is not merely a pure and simple default but  a  default  which  is  per  se  deliberate  and intentional. In  N. Ramaswami  Reddiar  v.  S.N.  Periamuthu Nadar,(2) Explanation to the proviso to s. 10 (2) of the Act was expressly considered and Ratnam, J. Observed as follows:           "A reading of the Explanation indicates that it is      not exhaustive  of all  cases of wilful default, but it      specifies only one instance where the default should be      construed as wilful. If a tenant does not pay the rents      at all for a considerable time and the landlord files a      petition for an order of eviction on the basis that the      tenant had committed wilful default without issuing any      notice, then,  in the  absence of any other explanation      by the  tenant, the  default  should  be  construed  as      wilful, in  spite of the fact that the landlord had not      chosen to  issue a  notice to  the tenant  claiming the      rents. In  this view,  I  hold  that  counsel  for  the      petitioner cannot be of any assistance to him."      We feel  ourselves in  complete agreement with the view taken by  the learned  Judge On  the interpretation  of  the proviso read  with the  Explanation. In  the case of Khivraj Chordia v. G. Maniklal Bhattad.(3) Ramamurti, J. has drawn a very apt and clearcut distiction      (1) AIR 1983 Madras 97.      (2) [1980] Law Weekly (vol. 93) 577      (3) AIR 1966 Madras 67 675 between a  simple default  and  a  wilful  default  and  has pointed out A that in order to be a ’wilful default’ it must be proved  that the con duct of the tenant was such as would lead to  the inference  that his  omission was  a  conscious violation of  his  obligation  to  pay  the  rent.  In  this connection, the learned Judge observed thus:                "The  decisions of this court have reportedly      pointed B‘  out that there is a clear difference in law      between default and wilful default and that non-payment      of rent  within the  time specified  by the Act, though      would amount to default, cannot by itself be treated as      wilful default, and that if the rent was paid after the      expiry of  the time  in the  following month  within  a      short time thereafter, the default cannot be said to be      wilful to warrant the punishment of eviction           Keeping in  mind the main object of the enactment,      namely, prevention of unreasonable eviction of tenants,      the principle  that emerges  from the several decisions      is that  for default  to be regarded as wilful default,      the conduct  of the tenant should be such as to lead to      the  inference   that  his  omission  was  a  conscious      violation of  his obligation  to  pay  r  the  rent  or      reckless  indifference.  If  the  default  was  due  to      accident or inadvertence or erroneous or false sense of

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    security  based   upon  the  conduct  of  the  landlord      himself, the  default  cannot  be  said  to  be  wilful      default."      Having, therefore,  enunciated the  various  principles and tests  to be  applied by courts in deciding the question of wilful  default we  now proceed  to  decide  the  various appeals filed before us. The brief facts of each appeal have already been  narrated in  the opening  part of our judgment and we would like to sum up our conclusions flowing from the facts found by, the High Court in each case.      In civil  appeal No. 1178 of 1984, it would appear that though the  tenant had  committed a  default but he had paid the entire  rent well  before the  filing of the suit by the landlord. In  fact, the  suit for  eviction was filed by the landlord not  on  the  ground  of  pending  arrears  but  to penalise the tenant for having defaulted in the past. Such a suit cannot  be entertained because once the entire dues are paid to  the landlord  the cause  of action  for filing of a suit completely  vanishes. Hence,  the suit  arising out  of civil appeal No. 1978 of 1984 must be dismissed as being not maintainable and  the order  of ejectment passed by the High Court is hereby set aside. H 676      In civil  appeal No. 6211 of 1983, having regard to the tests and the criteria laid down by us there can be no doubt that wilful default in the payment of arrears to the tune of Rs. 900 has been proved and as there is nothing to show that the arrears  were not  paid or withheld due to circumstances beyond the  control of  the tenant,  the order  of  eviction passed by  the High  Court is  confirmed, and  the appeal is allowed.      In civil  appeal No.  1992 of 1982, a somewhat peculiar position seems  to have  arisen. It  is true  that, to begin with, the tenant did not pay the rent for the months of June 1977 to  January 1978  which   led the  landlord to  issue a notice on  16.1.78 demanding payment of arrears amounting to Rs. 392.  The tenant within 15 days of receipt of the notice (on 30.1.783  sent a  detailed reply  to  the  landlord  and enclosed a  Bank Draft  of Rs.  39.2 which was, however, not encashed by  the landlord  and returned  to the tenant after filing of   the eviction petition, for reasons best known to him. Therefore,  since the  tenant had already complied with the notice  within the  stipulated  time  envisaged  by  the Explanation to  Proviso to  s. 10  (2) of  the  Act,  by  no stretch of  imagination could  be called  guilty  of  wilful default. On  the other  hand, the conduct of the landlord in filing a suit and not encashing the Bank Draft was motivated with a  view to  get a  decree for eviction on false excuse. Such a  state of  affairs could  not be  countenanced by the court. In  these circumstances,  we are  of the opinion that the arrears  having been  paid through  the Bank  Draft, the question of eviction of the tenant did not arise nor did the question of default come into the picture merely because the landlord  wanted   to  harass  him  by  filing  an  eviction petition. The High Court was, therefore, clearly in error in passing the  decree of   ejectment  against the  tenant. We, therefore, allow  the appeal  and set aside the order of the High Court evicting the tenant.      In civil  appeal No.  1659 of 1982, as it was clearly a case of  wilful default  on the part of the tenant we affirm the order  of the High Court evicting the tenant and dismiss the appeal.        In  civil appeal No. 3668 of 1982, some dispute arose between the  parties as  to  whether  the  rent  was  to  be deposited in  Bank, resulting  in the  filing of the present

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suit for  eviction on  1.4.80  in  the  court  of  the  Rent Controller by  the landlord  after verifying  from the  Bank that the tenant had not deposited the rent for the months of January and February 1980. This default, in our opinion, was undoubtedly deliberate, conscious and without any reasonable or rational basis 677 and the  High Court  was perfectly right in holding that the tenant A  was guilty  of wilful default and passing a decree for ejectments.  As no  notice was  given by  the  landlord, Explanation to  proviso to  s. 10  (2) of  the Act  does not apply at all. The appeal is accordingly dismissed.      In civil  appeal No.  2246  of  1982,  the  respondent- landladies had  let out  the premises  to the  tenant  at  a monthly rent  of Rs.  105. A petition for eviction was filed by them  on 2.11.76  for non-payment  of rent  by the tenant from January  1976 to  September 1976, a period of 9 months. But, we  might state  here that  before filing  the eviction petition, the  respondents had  issued a  notice  on  6.7.76 asking the  tenant to pay the dues, which the tenant paid on 17 7.76,  i.e., within 10 days of the receipt of the notice, which was  accepted by the landladies without any prejudice. The Rent  Controller held that the default was not wilful as in pursuance  of the  notice the  payment had  already  been made. The  Appellate Authority  reversed the  finding of the Rent Controller  and held  that the  default was wilful. The High Court  in revision upheld the order of eviction O n the ground that  there was  no satisfactory explanation for non- payment of  rent for  the period  January to  June 1976.  In coming to  this finding, the High Court was clearly in error because the  tenant had  already deposited  the entire  dues including the  rent from  January to June, on 17.7.76. Thus, the question  of wilful default could not arise nor could it be said  that the default was either conscious or deliberate or international. Moreover, in view of the Explanation since the tenant  had paid  the amount  within  the  time  of  the notice, there  could be  no question of wilful default. This fact seems  to have  been completely  overlooked by the High Court. We,  therefore, allow  the appeal  and set  aside the order of the High Court directing eviction of the tenant.      In civil  appeal No.  4012 of 1982, the tenant occupied the premises  at a  monthly rent of Rs. 325. It appears that the tenant  defaulted in  payment of  tent  from  June  1976 onwards and  after repeated  demands, only a sum Or Rs. 1000 was paid  by him on 1.4 77. leaving a substantial balance of arrears unpaid.  The plea  of the  tenant that  he had  made payments to  the Income  Tax Department has not been proved, nor did  the tenant have any right under the contract to pay any amount  to the Income Tax Department and if he did so on his own,  he must  he held responsible for his conduct. Even so, the  landlord contended that right from February 1977 to July 1978,  the appellant  was in arrears without any lawful cause. This  was, therefore,  a clear case of wilful default where the tenant did not pay the 678 rent deliberately,  consciously and  intentionally. In these circumstances, the High Court was fully justified in holding that the  default was wilful and affirming the decree passed by the Appellate court. The appeal is accordingly dismissed.        The result is that all the appeals are disposed of as indicated above  but in  the circumstances  there will be no order as  to costs  in any  of the appeals. Civil Appeal No. 5769 of  1983 already  stands disposed  of in  terms of  our Order of September 12,1984.      SABYASACHI  MUKHARJI,  J.  With  great  respect  to  my

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learned brothers,  I regret  I am  unable to  agree  on  the construction put  on the  expression ’wilful default’ in the Explanation to  the Proviso of sub-section (2) of section 10 of the  Tamil Nadu  Buildings (Lease  and Rent Control) Act, 1960. It  may be borne in mind that The Tamil Nadu Buildings (Lease and  Rent Control)  Act, 1960  hereinafter called the ’Act’ was  an Act  to amend and consolidate the law relating to  the  regulation  of  letting  of  residential  and  non- residential buildings  and the  control  of  rents  of  such buildings and  the prevention  of unreasonable  eviction  of tenants therefrom  in the  State of  Tamil Nadu. The Act was from time  to time  amended and was last amended by Act 1 of 1980. By  Act 23  of 1973,  an Explanation  was added to the Proviso to sub-section (2) of section 10 of the Act.      Section 10  of the  Act  deals  with  the  eviction  of tenants. In  order to  appreciate the  scheme of the section and the meaning of the expression ’wilful’ introduced by the Explanation to the Proviso of sub-section (21 of section 10, we have  to examine  the provisions  of section  10 and  the various  sub-sections   of   the   section.   As   mentioned hereinbefore section  10 deals  with the eviction of tenants and postulates that a tenant shall not be evicted whether in execution of a decree or otherwise except in accordance with the provisions of section 10 or sections 14 to 16. For these appeals we are not concerned with the provisions of sections 14 to 16.      The first  Proviso to  sub-section (l)  of  section  10 stipulates that  the said  sections 14 to 16 would not apply to a  tenant whose  land lord  is the Government- The second Proviso also provides that if the tenant denies the title of the landlord  or claims  right  of  permanent  tenancy,  the Controller shall  decide whether the denial or claim is bona fide and  if he  records  a  finding  to  that  effect,  the landlord shall be entitled to sue for eviction of the tenant in a  Civil Court  and the  Court  may  pass  a  decree  for eviction on any of the grounds 679 mentioned in  the said  sections, notwithstanding  that  the Court finds  that such denial does not involve forfeiture of the lease or that the claim is unfounded. Sub-section (2) of section 10  of the  Act deals  with the  procedure  which  a landlord must  follow in  order  to  evict  his  tenant.  It provides that  a landlord should apply to the Controller for a direction  for  eviction  if  he  wants  it  and,  if  the Controller, after giving the tenant a reasonable opportunity of showing  cause against the application, is satisfied with any of the various conditions which are stipulated in clause (i), (ii),  (iii), (iv),  (v), (vi)  and (vii) then he shall make an  order directing  the tenant  to put the landlord in possession of  the building  and if  the Controller  is  not satisfied, he shall make an order rejecting the application. The Proviso to sub-section (2) of section 10 is as follows:           "Provided that  in any  case falling  under clause      (i) if  the Controller  is satisfied  that the tenant’s      default to  pay or  tender rent was not wilful, he may,      notwithstanding any thing contained in section 11, give      the tenant  a reasonable  time, not  exceeding  fifteen      days, to  pay or  tender the  rent due  by him  to  the      landlord up  to the  date of such payment or tender and      on such  payment or  tender, the  application shall  be      rejected."      The Explanation  which was  added by  Act 23 of 1973 to the said  Proviso stipulates  that for  the purpose  of this sub-section,  default   to  pay  or  tender  rent  shall  be construed as  wilful, if  the default  by the  tenant in the

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payment or  tender of  rent continues after the issue of two months’ notice by the landlord claiming the rent. It is this Explanation that  falls for  consideration in these appeals. Clause (i)  of sub-section  (2) of  section 10  of  the  Act requires the  Controller to be satisfied that the tenant has not paid  or tendered  rent due  by him  in respect  of  the building within  fifteen days  after the  expiry of the time fixed in  the agreement  of the tenancy with his landlord or in the absence of any such agreement, by the last day of the month next following that for which the rent is payable. For the purpose  of  these  appeals,  it  is  not  necessary  to consider the  grounds of eviction mentioned in other clauses of sub-section  (2)  of  section  10  of  the  Act.  If  the Controller is  satisfied of  any of the grounds mentioned in clause (i) to clause (vii) of sub-section (2) of section 10, then the  shall, so  the section  stipulates, make  an order directing the  tenant to  put the  landlord in possession of the building and if he is not so satisfied, he shall make an order rejecting  the application;  the Proviso provides that in any case falling under clause (i) which we have noted 680 hereinbefore,  if  the  Controller  is  satisfied  that  the tenant’s default  to pay  or tender  rent was not wilful, he may, notwithstanding anything contained in section l l, give the tenant a reasonable time, not exceeding fifteen days, to pay or  tender the  rent due by him to the landlord upto the date such  payment or  tender and on such payment or tender, the application  shall be rejected. The Explanation which is the subject matter of interpretation before us and which was added, as  noted before,  by Act  23 of  1973 by section 10, stipulates that  for the  purpose of  the said  sub-section, namely sub  section (2)  of section  10, default  to pay  or tender rent  shall be construed as wilful, if the default by the tenant  in the payment or tender of rent continues after the issue of two months’ notice by the landlord claiming the rent.  The   question,  therefore,  is-can  the  default  be construed as wilful under any other circumstances apart from default continuing  after the issue of two months’ notice by the landlord  claiming the  rent ?  In other  words, for the purpose of  this section,  will the  wilful default  be only when notice  has been  given by  the landlord and two months have expired  and the  tenant has  not paid  the rent  ?  My learned brethren  say that  there may be other circumstances constituting wilful  default. With respect, I differ. I will briefly note the reasons.      As I  read the  provision, it  appears to me that there must be  satisfaction of  the Controller whether default was wilful and  a default  will be  construed as  wilful, in  my opinion, only  where the  landlord has  given notice and two months have  expired without  payment of  such rent. Default has been  construed  in  various  ways  depending  upon  the context. ’Default’  would seem  to embrace  every failure to perform part  of one’s  contract or  bargain. It is a purely relative term  like  negligence.  (See  in  this  connection Stroud’s Judicial.  Dictionary Vol.  1, Third  Edition, page 757). It  means nothing  more, nothing  less, than not doing what  is  reasonable  under  the  circumstances;  not  doing something which  you ought  to  do,  having  regard  to  the transaction. Similarly,  default  in  payment  imports  some thing wrongful,  the omission  to  do  some  act  which,  as between the parties, ought to have been done by one of them. It simply  means non-payment,  failure or  omission to  pay. (See Prem’s  Judicial Dictionary,  Vol. I,  1964 page  483). Earl Jowitt  defines ’default’  as omission  of that which a man ought  to do.  (See The  Dictionary of English Law. page

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597). The Privy  Council in  the case  of Fakir  Chander Dutt  and Others 681 v. Ram  Kumar Chatterji(1)  observed that  ’Default’ did not necessarily A  mean breach  of contractual  obligation,  but simply non-payment of rent by a person capable of protecting his tenure by doing so.       Default  happens in  payment of  rents  under  various contingencies and situations. Default is a fact which can be proved by evidence. Whether the default is willful or not is also a  question of  fact to be proved from evidence, direct and circumstantial, drawing inferences from certain conduct. If the  Courts are free to decide from varying circumstances whether default  was  wilful  or  not,  then  divergence  of conclusions are  likely to  arise,  one  judicial  authority coming to the conclusion from certain circumstances that the default was  wilful, another  judicial authority coming to a contrary conclusion  from more  or less  same circumstances. That creates  anomalies. In  order to obviate such anomalies and bring  about a  uniform standard,  the explanation  as I read, explains  the expression ’wilful’ and according to the Explanation added, a default to pay or tender rent "shall be construed", as  wilful if  the default  by the tenant in the payment of  rent continues after issue of two months’ notice by the  landlord claiming  the rent If that is the position, in a  case where the landlord has given notice to the tenant claiming the  rent and  the tenant has not paid the same for two months,  then the  same  must  be  construed  as  wilful default,  whatever   may  be   the  cause  for  non-payment- bereavement on  the date of payment in the family of near or dear ones  or serious  heart attack  or other ailment of the tenant or  of any  person sent by the tenant to pay the rent cannot be  excused and cannot be considered to be not wilful because the  legislature has  chosen to  use the  expression "shall be  construed as  wilful" if  after a  notice by  the landlord for  two months,  failure to  pay or tender rent on the part  of the  tenant continues, and if it is wilful then under sub-section  (2) clause (i) read p with the proviso as explained  by   the  Explanation,  the  Controller  must  be satisfied and  give an  order for  eviction. The question is whether in  other cases,  that is  to say,  in  cases  where admittedly or  by other  facts or aliunde the Court comes to the conclusion  that the default is wilful, for instance, in a case  where there  is chronic default, regular defaults or habitual defaults,  the two  months’ notice  is necessary or not. It  was the  argument on behalf of the respondents that in those  circus- stances  such notice was not necessary and this is  the view  which has  found acceptance by my learned Brethren: I am unable to agree,       (1) Indian Appeals, Vol. XXXI, p. 195. 682 with respect.  If in cases  where there are genuine and bona fide reasons for failure or non payment of rent which cannot be excused  after two months’ notice to pay rent, then other causes which lead to inference of wilful default cannot also be construed  as ’wilful  default’ in  the  context  of  the Explanation. The  legislature has  provided an  absolute and clear definition  of ’wilful  default’. Other  circumstances cannot be considered as wilful default.       In  my opinion,  the expression  "shall be  construed" would have  the effect  of providing  a definition of wilful default in the proviso to sub-section (2) of section 10.       If a definition is provided of an expression, then the Courts are  not free  to construe  the expression  otherwise

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unless it  is so warranted by the use of the expression such as "except  otherwise provided  or  except  if  the  context otherwise indicates".  There is  no such  expression  in the instant  case.   There  may   be  in  certain  circumstances intrinsic evidence indicating otherwise. Here there is none.       The  whole scheme of section 10 is that in order to be entitled to  eviction on  the ground of arrears of rent, the ingredients of  which the  Controller must be satisfied are; (a) default, (b) default was wilful. Whether in a particular case default  is  wilful  or  not,  must  be  considered  in accordance with  the definition  provided in the Explanation to Proviso  to sub-section  (2) of section 10 of the Act. If it was  intended that  the Courts  would be  free  to  judge whether in  a particular  set up  of facts,  the default was wilful or not where no notice has been given, then in such a case there  was no  necessity of  adding this Explanation to the Proviso which is a step to the making of the  findings  under clause  (1 of sub-section (2) of section 10 of the Act. It is well-settled that the Legislature does not act without purpose or in futility.       lt  was contended  on behalf of the landlords that the Legislature has  not used  the expression  default to pay or tender rent shall be construed as wilful only if the default by the  tenant in  the payment  or tender  of rent continues after the  issue of  two  months’  notice  by  the  landlord claiming the  rent- It  is true  that  legislature  has  not chosen to  use language  to indicate that in no other cases, the default could be considered to be wilful except one case which has been indicated in the Explanation. 683             As I read the Explanation it is not so necessary because Legislature   has  defined ’wilful  d fault’  by the expression that  ’default to  pay or  tender rent  shall  be construed’ meaning  thereby that  it will mean only this and no other.  My  learned  brethren  have  given  instances  of difficulties and  hardships, if  the other defaults, that is to say,  default apart  from tenant  not  paying  after  the expiry of  notice by  the landlord  are  not  considered  as wilful default.  It is  true that there may be hardships and many problems might arise. I share the apprehension of these problems and  hardships but  I find no justification to read that these  hardships of  which Legislature  must have  been aware, were  also intended to be covered by the Explanation. It appears to me that the meaning is clear about the purpose of introduction  of the  Explanation, i.e,   to  obviate the difficulties and  divergence of  judicial opinions depending upon varying  circumstances, the  legislature has provided a uniform definition to the concept of ’wilful default’. It is true that  where two  constructions are  possible, one which avoids anomalies  and creates  reasonable results  should be preferred but where the language is clear and where there is a  purpose  that  can  be  understood  and  appreciated  for construing  in  one  particular  manner,  that  is  to  say, avoidance of  divergence of  judicial opinions in construing wilful default  and thereby avoiding anomalies for different tenants, one  judge taking a particular view on the same set of facts,  another judge taking a different view on the same set of  facts, in my opinion, it would not be proper in such a situation  to say  that this  definition of wilful default was only  illustrative and not exhaustive. I cannot construe the expression  used in  the Explanation  to the  Proviso to sub-section (2)  of section  10  as  illustrative  when  the Legislature has  chosen to  use  the  expression  "shall  be construed". It  has been  observed that statutory provisions must be  so construed, if it is possible, that absurdity and

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mischief  may  be  avoided.  Where  the  plain  and  literal interpretation of  statutory provision  proviso  produces  a manifestly absurd  and unjust result, the Court might modify the language  used  by  the  legislature  or  even  do  some violence to it so as to achieve the obvious intention of the legislature  and  produce  rational  construction  and  just results. (See  v. in this connection the observations in the case of Bhag Mal Vs. Ch. Prabhu Ram and Others (Civil Appeal No. 1451 (NCE) of 1984). Lord Denning in the case of Seaford Court Estates Ltd. v. Asher(l) has observed:       "If  the makers  of the Act had themselves come across this          1. [1949] 2 All E.R. 155a 164(CA) 684 ruck in  the texture of it, how would they have straightened i out ? He must then do as they would have done A judge must not alter  the material of which it is woven, but he can and should iron out the creases."       Ironing out the creases is possible but not re-writing the language  q to  serve a  notion of public policy held by the judges.  Legislature must  have legislated for a purpose by Act  23  of  1973  and  used  the  expression  "shall  be construed" in Explanation in the manner it did.       The  fact that in interpreting the statutory language, judges should  avoid policy as an approach was emphasised by Lord Scarman  in the  decision of  the House of Lords in the case of  Regina v.  Barnet London  Borough  Council  Exparte Nilish  Shah.(l)  User  of  policy    in  interpretation  of statutory  language,   Lord   Scarman   observed,   was   an impermissible approach  to the  interpretation of  statutory language. Judges  should not interpret statutes in the light of their  own views as to policy. They may, of course, adopt a purposive  interpretation if  they can find in the statute read as  a whole  or in material to which they are permitted by law  to refer  as aids to interpretation an expression of Parliament’s purpose or policy.      In the  case of  Carrington and Others v. Therm-a-Stor- Ltd,(2) the  Master of the Rolls observed that "If regard is had solely  to the  apparent mischief  and the  need  for  a remedy, it  is only too easy for a judge to persuade himself that Parliament  must have  intended to  provide the  remedy which he  would himself  have decreed if he had  legislative power. In  fact Parliament  may not have taken the same view of what  is a  mischief, may  have decided  as a  matter  of policy not  to legislate  for a  legal remedy  or may simply have failed  to realise that the situation could ever arise. This is  not to  say that  statutes are  to be  construed in blinkers or with narrow and legalistic literalness, but only that effect  should given to the intentions of Parliament as expressed in  the statute,  applying the  normal  canons  of construction  for  resolving  ambiguities  or  any  lack  or clarity."          1. 1983(2) Weekly Law Reports, 16 at 30.          2. 1983 (1) Weekly Law Reports 138 at 142. 685              In  the aforesaid  view of  the matter, I would construe the  expression ’wilful default’ in the Explanation to Proviso to subsection (2) of section 10 of the Act in the manner l have indicated. In that view of the matter, I would decide the  appeals accordingly,  that is  to say,  l  would agree with  my learned brethren in the order passed in those cases where  eviction orders  have  been  passed  after  two months’ notice  had been  given and there was continuance of default by  the tenant  thereof.  Appeals  which  have  been disposed of  on the basis of wilful default as understood in

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the manner  indicated in the aforesaid observations of mine, I respectfully agree. Appeals which have been disposed of on wilful default  other than  in the  manner I  have indicated hereinbefore, I  respectfully differ. The individual appeals are disposed  of accordingly.  There will  be no order as to costs. M.L.A.                                    Appeals dismissed. 741 fair return  on  the  ’capital  employed’  which  is  to  be exempted from  A tax  under sub-section  (1) of Section 80J, the owner’s  capital alone  should be taken into account and borrowed monies  should be  excluded. Even  in regard to the provisions of the above mentioned four statutes, an argument could well be advanced that borrowed monies are as much part of capital  employed in  the undertaking  as    the  owner’s capital and  when monies are borrowed on payment of interest by way  of hire  charges, they  become part  of the  owner’s capital originally  brought in  by the owner and there is no reason why  capital partaking of the samd characteristics as the fair  return should  not be  allowed  on  it.  This  has precisely been  the  argument  advanced  on  behalf  of  the assesses  in  support  of  their  contention  that  ’capital employed’ must include borrowed monies in sub-section (1) of Section 80J.  But this  argument has  not prevailed with the Legislature in  the enactment  of any of the above-mentioned four statutes  and despite this argument the Legislature has chosen to  exclude borrowed monies in computing the ’capital employed’ or the capital of the company for determining what should be regarded as fair return, so that profits in excess of such  fair return may be subjected to additional tax. The Central Board  of Revenue cannot therefore be accused of any irrationality or  whimsicality in providing that fair return on the  ’capital  employed’  eligible  for  exemption  under subsection :1)  of  Section  80J  should  be  calculated  by applying the  statutory percentage  to the  owner’s capital, that is,  the paid  up share  capital and  reserves  without taking into  account long  term borrowings or for the matter of that, any borrowed monies and debts. We cannot appreciate the contention  of Mr.  Palkhivala that when the Legislature was offering a tax incentive it could not have intended that the tax incentive should be measureable by reference only to the owner’s  capital and  that borrowed  capital should  b e left out  of account,  because that would, in the submission of  Mr.   Palkhivala,  result   in  favouring  the  affluent assessees who  are able  to employ  their  own  capital  and discriminate against  the indigent  who have to borrow funds to  finance   their  undertakings.   Having  regard  to  the legislative practice  and usage  referred to  by us,  it  is obvious that  if the  Legislature intended  that the capital employed’ must include long term borrowings, the Legislature would  not   have  used  the  flexible  expression  ’capital employed’ but  would have  expressed itself unambiguously by providing that  the ’capital  employed’ shall  include  long term borrowings.  It is  clear from the language used by the section that the Legislature proceeded on the basis that the expression ’capital  employed’ has no fixed definite meaning including or excluding long term borrowings and deliberately chose to  leave it  to  the  Central  Board  of  Revenue  to prescribe 742 how the  ’capital employed’  shall be  computed or  in other words, what  items shall be included and what items excluded in computing  the ’capital  employed’ and  by  incorporating Rule 19A  with retrospective  effect in  Section 80J  by the Finance (No.  2) Act 1980, the Legislature clearly expressed

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its aproval  of the  manner of  computation of  the ’capital employed’ prescribed  by the  Central Board  of  Revenue  by making sub-rule  (3) of  Rule 19A.  The consequence  of this interpretation would undoubtedly be that the assessees would get relief  only with reference to their own capital and not with reference  to any monies which might have been borrowed by them  for employment  in the  undertaking but  that is  a matter of  policy which clearly falls within the province of the Executive  and the  Courts are not concerned with it. It is obvious  that the  Central Board  of Revenue intended-and having regard  to the retrospective amendment of Section 80J by Finance Act (No. 2) of l980 that must also be taken to be the intention  of the  legislature-that the assessees should be given  relief only  with reference  to their  own capital and not  with reference  to any  borrowed monies, presumably because  the  object  of  giving  relief  was  to  encourage assessees to  bring out  their own  monies for  starting new industrial undertakings  and the  intention was not that the assessees should  be given  relief with  reference to monies which did  not belong  to them but which  were borrowed from financial institutions  and other  parties and  which  would have to be repaid.       Mr.  Palkhivala then contended that if sub-section (1) of Section  80J were  construed as leaving it to the Central Board of  Revenue to  prescribe what items shall be included and what  items excluded  in  computation  of  the  ’capital employed’ it  would be vulnerable to attack on the ground of excessive  delegation   of  legislative   power  and   would consequently be void. We do not think there is any substance in this  contention, for  there is  in the  present case  no question of  excessive delegation  of legislative power. The essential  legislative  policy  of  allowing  relief  to  an assessee who starts a new industrial undertaking or business of a  hotel and  declaring the  period for which such relief shall be  granted, is laid down by the Legislature itself in the various sub-sections of Section 80J and all that is left to the  Central Board  of Revenue to prescribe is the manner of computation  of the  ’capital employed’ with reference to which the  quantum of  the relief is to be calculated. It is only the  details relating  to the  working of the exempting provision contained  in Section  80J which  are left  by the Legislature  to  be  determined  by  the  Central  Board  of Revenue. This 743 is clearly  permissible  without  offending  the  inhibition against excessive  delegation of  legislative power. It must be remembered  that Section  80J enacts  an exemption  in  a taxing statute  and a  certain margin  of latitude is always allowed to  the Executive  in working  out  the  details  of exemption in a such taxing statute. It was laid down by this Court as  far as back as 1959 in Pt. Banaarsi Dass Bhanol v. State of Madhy a Pradesh(l).            "Now,  the authorities  are clear  that it is not      unconstitutional for the legislature to leave it to the      executive to  determine details relating to the working      of taxation  laws, such  as the selection of persons on      whom the tax is to be laid, the rates at which it is to      be charged  in respect  of different  classes of goods,      and the like."       So  also in  Sitaram Bishambardas and Ors. v. State of U.P. and  Ors.(Z) this  Court upheld the validity of Section 3D (1)  of the  U.P. Sales Tax Act 1948 which authorised the levy of  a tax  on the  turnover of  first purchases made by dealer or  through a deal r acting as a purchasing agent, in respect of  such goods  or class of goods and at such rates,

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subject to  a maximum,  as may from time to time be notified by the  State Government and Hegde, J. speaking on behalf of the Court observed: E            ’It  is true  that the power to fix the rate of a      tax is  a legislative power but if the legislature lays      down the  legislative policy and provides the necessary      guidelines,  that   power  can   be  delegated  to  the      executive. Though  a tax  is levied  primarily for  the      purpose of  gathering revenue, in selecting the objects      to be taxed and in determining the rate of tax, various      economic and  social aspects,  such as the availability      of the goods, administrative convenience, the extent of      evasion, the  impact  of  tax  levied  on  the  various      sections of  the society etc- have to be considered. In      a modern society taxation is an instrument of planning.      It can be used to achieve the economic and social goals      of the State For that reason the power to tax must be a      flexible power.  It must  be capable of being modulated      to meet  the exigencies  of the situation. In a Cabinet      form of Government, the executive       (1) (1959) S.C.R. 427.          (2) [1972] 2 S.C.R. 141. H 744 is expected  to reflect  the views  of the  legislatures. In fact in  most matters  it gives the lead to the legislature. However, much  one might  deplore the  "New Depotism" of the executive, the very complexity of the modern society and the demand it  makes on its Government have set in motion forces which ha e made it absolutely necessary for the legislatures to entrust  more and more powers to the Executive. Text book doctrines evolved  in the  1 9th  century have become out of date. Present  position as regards delegation of legislative power may  not be  ideal, but  in the  absence of any better alternative, there  is no  escape from  it. The legislatures have neither the time, nor the required detailed information nor even the mobility to deal in detail with the innumerable problems arising time and again. In certain matters they can only lay down the policy and guidelines in as clear a manner as possible."       The  validity of  Section 3D of the U.P. Sales Tax Act 1948 was again challenged before this Court in Hiralal Ratan Lal v.  State of  U.P. and  Anr (1)  the same ground that it suffered from  the vice  of legislative power and again, the challenge was  negatived by  this Court  with the  following observations:             "The  only  remaining  contention  is  that  the      delegation made  to the  executive under  s. 3D  is  an      excessive delegation.  It is  true that the legislature      cannot delegate  its legislative function, to any other      body.  But   subject  to   that  qualification,  it  is      permissible for  the legislature  to delegate the power      to select  the persons  on whom the tax is to be levied      or the goods or the transactions on which the tax is to      be levied.  In the  Act, under s. 3 the legislature has      sought to  impose multi-point  tax  on  all  sales  and      purchases. After having done that it has given power to      the executive,  a high  authority and which is presumed      to command  the majority support in the legislature; to      select for  special treatment dealings in certain class      of  goods.   In  the  very  nature  of  things,  it  is      impossible for  the legislature  to  ennumerate  goods.      dealings in  which Sales. Tax or Purchase tax should be      imposed. It  is also  impossible for the legislature to      select the goods which should be subjected to       (1) [1973] 2 S.C.R. 502.

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745      a single  point sales  or purchase  tax. Before  making      such selections  several aspects  such as the impact of      the levy  on the society, economic consequences and the      administrative convenience  will have to be considered.      These factors  may change  from time  to time. Hence in      the very nature of things, these details have got to be      left to the executive."       The  principles laid  down in  these observations from the decided  cases  clearly  govern  the  present  case  and conclusively repel  the contention or Mr. Palkhivala that if sub-section (1)  of Section 80J were construed in the manner suggested by  the learned  Attorney General on behalf of the Revenue,  it  would  be  rendered  void  on  the  ground  of excessive delegation  of legislative  power. the Legislature having laid  down the legislative policy of giving relief to an assessee  who is starting a new industrial undertaking or the business  of a hotel. had necessarily to leave it to the Central Board  of Revenue  to determine  what should  be the amount of  capital employed  that should  be required  to be taken into  that account  for the purpose of determining the quantum of  the relief  allowable under  the  Section.  What should be  the  quantum  of  the  relief  allowable  to  the assessee would necessarily depend upon diverse t‘actors such as the  impact of  relief on  the industry  as a  whole, the response of  the industry  to the  grant of  the relief, the adequacy or  inadequacy of  the relief  granted in promoting the growth  of new industrial undertakings, the state of the economy prevailing  at the  time, whether  it is  buoyant or depressed and  administrative convenience. These are factors which may  change from  time to  time and  hence in the very nature,  of  thin  as,  the  working  out  of  the  mode  of computation of  the ’capital  employed’ for  the purpose  of determining the  quantum of  the relief  must necessarily be left to  the Central Board of Revenue which would be best in a position  to consider  what should  be the  quantum of the relief necessary  to be  given by  way of  tax incentive  in order to  promote setting  up of new industrial undertakings and hotels and for that purpose, what amount of the ’capital employed’ should  form the  basis for  computation  of  such relief.       Moreover, it may be noticed that under Section 29(, of the Income  Tax 1961  every  Rule  made  under  the  Act  is required to  be laid before each House of Parliament so that both Houses  of Parliament  have an  opportunity of  knowing what the  rule is  and considering  whether any modification should be made in the rule or the rule should not be made or issued and  if both  Houses agree in making any modification in the rule or both Houses agree that the H 746 Rule should  not be  made or  issued, then  the  Rule  would thereafter have effect only in such modified form or have no effect at  all. as  the case may be. Parliament has thus not parted with  its control  over the rule making authority and it exercises  strict vigilance  and control  over  the  rule making power exercised by the Central Board of Revenue. This is  a   strong  circumstance  which  militates  against  the argument based on excessive delegation of legislative power. This view receives considerable support from the decision of the Privy  Council in  Powell v.Appollo  Company  Limited(1) where the Judicial Committee, while negativing the challenge to the  constitutionality of  Section  133  of  the  Customs Regulation Act of 1879 which conferred power on the Governor to impose  tax on  certain articles  of import,  observed as follows:

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          "It  is argued  that the tax in question has been      imposed by  the Governor and not by the Legislature who      alone had  power to  impose it.  But the  duties levied      under the  Order-in V  Council are really levied by the      authority of  the Act  under which the Order is issued.      The Legislature has not parted with its perfect control      over the Governor, and has the power, of course, at any      moment, of withdrawing or altering the power which they      have entrusted  to him.  In these  circumstances, their      Lordships are  of opinion  that  the  judgment  Of  the      Supreme Court was wrong in declaring Section 133 of the      Customs Regulation  Act of  1879 to be beyond the power      of the Legislature.       The  same approach  was adopted by this Court in D. S. Grewal v. State of Punjab(2) where upholding the validity of Section 3  of the  All India  Services Act  1951  which  was challenged  on   the  ground   of  excessive  delegation  of legislative power,  Wanchoo, J.  speaking on  behalf of  the Court said:            "Further,  by s.  3 the  Central  Government  was      given the power to frame rules in future which may have      the effect  of adding to, altering, varying or amending      the rules  accepted under  s.4 as  binding. Seeing that      the rules would govern the all-lndia services common to      the  Central   Government  and   the  State  Government      provision was  made by  s.3 that rules should be framed      only after consulting the State       (1)11885]10 A.C. 282.          (2)11959] Supp. 1 S.C.R. 792. 747      Governments. At the same time Parliament took care to A      see  that  these  rules  were  laid  on  the  table  of      Parliament for  fourteen days  before they were to come      into force  and  they  were  subject  to  modification,      whether by  way of repeal or amendment on a motion made      by Parliament  during the  session in which they are so      laid. This makes it perfectly clear that Parliament has      in no  way abdicated  its  authority,  but  is  keeping      strict vigilance and control over its delegate.       It  will thus  be seen  that there  is no  question of excessive delegation  of legislative  power in  the  present case and, even on the view as to interpretation taken by us, sub-section  (1)  of  Section  80J  cannot  be  assailed  as unconstitutional on  the ground  of excessive  delegation of legislative power.  We must  therefore hold that subrule (3) of Rule  19A in  so far  as it  provided  for  exclusion  of borrowed  monies   and  debts   and  particularly  long-term borrowings in  computation of  the ’capital  employed’ could not  be  said  to  be  outside  the  rule  making  authority conferred on  the Central Board of Revenue under sub-section (1) of  Section 80J  and was  a  perfectly  valid  piece  of subordinate legislation.       That  takes us  to  the  second  point  urged  by  Mr. Palkhivala relating  to the  dimension of  time in regard to the expression  ’capital  employed’.  The  argument  of  Mr. Palkhivala was  that the  concept of  ’capital employed’  in respect of  the previous  year is  a concept  which  compels attention to  the reality  of the  capital used  during  the whole  year   and  not  merely  on  the  first  day  of  the computation period  and therefore  Rule 19A  in so far as it provided for computation of the ’capital employed’ as on the first day of the computation period was ultra vires the rule making authority  of the Central Board of Revenue under sub- section (1)  of Section. 80J This argument of Mr. Palkhivala is also  unsustainable and must be rejected. It may be noted

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that when  sub-section (1) of Section 80J speaks of ’capital employed’ in  an industrial  undertaking or  business  of  a hotel, it  does not  refer to  ’capital employed’ during the previous year  but it uses the expression ’capital employed’ in respect of the previous year, There is a vital difference between the  expression "during  the previous  year" and the expression "In  connection  with  the  previous  year".  The argument of Mr. Palkhivala would have had great force if the reference in  sub-section (1) of Section 80J would have been to ’capital  employed’ during  the previous  year-  Then  it could have  been contended  with  considerable  plausibility that the ’capital employed’ 11 748 cannot be computed as on the first day of the previous year, but it  should be taken to be the average amount of ’capital employed’ during  the previous year. But the expression used by the  Legislature in  sub-section (1) of Section 80J being "capital employed..  computed in  the prescribed  manner  in respect of the previous year", the  computation has to be in respect of  the previous  year and  it need  not  take  into account the  average amount of ’capital employed’ during the previous year  but it can legitimately take the first day of the previous year as the point of time at which the ’capital employed’  must  be  computed.  The  ’capital  employed’  so computed would  clearly fall  within the expression "capital employed.. computed  in the  prescribed manner in respect of the previous year". Mr. Palkhivala relied on the description given in the parenthetical portion at the end of sub-section (1) of  Section 80J which describes the amount calculated by applying the  statutory rate of six per cent to the ’capital employed’ computed  in the  prescribed manner  in respect of the  previous  year  as  "the  relevant  amount  of  capital employed   during the  previous year",  but that is merely a description given  to the  amount calculated  as provided in the main  part of  sub-section (1) of Section 80J and in the main part,  we find  the words  "in respect  of the previous year" and  not "during the previous year". It may be pointed out that  the words  "in respect  of the previous year" were introduced for  the first  time when  Section 80J came to be enacted as  a result  of the Report of Shri S. Boothalingam, where he  recommended that  the  prevailing  "base  for  the calculation of  profits, nemely,  average ’capital employed’ in the  business  during  each  year"  was  complicated  and difficult to  establish and  it was  therefore desirable  to adopt the  basis of computation of the ’capital employed’ as "at the  beginning  of  the  year  but  ignoring  the  fresh introduction of  capital in  the course of the year". It was following upon  the introduction of the words ’in respect of the previous  year" in  subsection (1)  of Section  80J that Rule l9A  was made providing for computation of the ’capital employed’ as  on the  first day  of the  computation period. Moreover, if  we refer  to the  definition  of    ’statutory deduction’ in sub-section (8) of Section ’ and Rule I of the Second Schedule  of the Companies (profits) Surtax Act 1964, it would be apparent that. according to the Legislature, the process  of  computation  of  the  capital  of  the  company includes also  the specification  of the point of time as on which  the   capital  of  the  company  shall  be  computed. Therefore" even  if the  words "in  respect of  the previous year" were  absent, it  would have  been  competent  to  the Central Board of Revenue as the rule making authority to  provide  for the computation of the ’capital employed as on the 749 first day  of the  computation period,  as was  done by  the

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Legislature in  the case  of the  Companies (Profits) Surtax Act 1964.  The words  "in respect  of the previous year" are facilitative of  the computation  of the  ’capital employed’ being prescribed  as on  the first  day of  the  computation period. We  cannot therefore  accept the  contention of  Mr. Palkhivala that  Rule l9A  in so  far  as  it  provided  for computation of the ’capital employed’ as on the first day of the computation period was outside the rule making authority of the  Central Board  of Revenue  under sub-section  (1) of Section 80J.       We  are therefore  of the view that Rule 19A in so far as it  excluded borrowed  monies and debts in computation of the ’capital  employed’ and  provided for computation of the ’capital employed’  as on  the first  day of the computation period was  not ultra  vires Section 80J and was a perfectly valid rule  within the  rule making authority conferred upon the Central Board of Revenue. So also, for the same reasons, Rule 9A in so far as it provided that the ’capital employed’ in a ship shall be taken to be the written down value of the ship as  reduced by the aggregate of the amounts owed by the assessee as  on the  computation date  on account  of monies borrowed or  debts incurred  in acquiring  that ship must be held to  be valid  as being within the rule making authority of the Central Board of Revenue. Since, on the view taken by us, Rule 19A did not suffer from any infirmity and was valid in its  entirety, Finance Act (No.2) of 1980 in so far as it amended Section 80J by incorporating Rule l9A in the Section with retrospective  effect from  1st April  1972, was merely clarificatory in  nature and  must accordingly be held to be valid. F       The  writ petitions will therefore stand dismissed but having regard to the importance of the questions involved in the writ  petitions, we  think it  would be fair and just to direct each  party  to  bear  its  own  costs  of  the  writ petitions.         A.N. SEN,  J. I  have had the benefit of reading the judgment prepared  by my  learned  brother  Bhagwati,  J.  I regret I cannot pursuade myself to agree.       The  material facts  have been  fully  stated  in  the judgment of  my learned  brother. My  learned brother in his judgment has  set out  all the  relevant provisions  of  the Income Tax  Act and the Income Tax Rules. He has also traced the legislative history of S.80J of the 750 Income Tax  Act, 1961  and has  noted the various amendments effected to  that section  from time  to time.  It does not, therefore, become  necessary to  reproduce the  same at  any length in  my judgment.  The two  questions which  fall  for determination are :      (1)   Whether  rule 19A  of the  Income-Tax  Act  Rules           insofar as the said rule excludes borrowed capital           and fixes  the first day of the year in the matter           of computation of capital employed for the purpose           of relief under section 80J is valid.      (2)   Whether the amendment introduced in S. 80J by the           Finance (No.2)  Act of  1980 incorporating  in the           section the provisions of     the rule in relation           to the  exclusion  of  borrowed  capital  and  the           fixing of  the first  day  of  the  year  for  the           purpose of computation of the capital employed for           granting relief  under S.  80J with  retrospective           affect from 1st April, 1972 is valid ?      The material provisions Of Rule 19A read as follows:-      (1)  For the  purposes of  S. 80J, the capital employed           in an  industrial undertaking or the business of a

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         hotel shall  be computed  in accordance  with sub-           rules (2)  to (4),  and the  capital employed in a           ship shall be computed in accordance with sub-rule           5).      (2)  The aggregate  of  the  amounts  representing  the           values of  the assets  as on  the first day of the           computation period,  of the  undertaking or of the           business of  the hotel  to which  the said section           80J applies  shall first  be  ascertained  in  the           following manner:      (i)  in the  case of  assets entitled  to depreciation,           their written down value;      (ii) in the case of assets acquired by purchase and not           entitled to depreciation, their actual cost to the           assessee:      (iii)     in the  Case of  assets  acquired  other-wise           then by purchase and not entitled to depreciation,           the value of the assets when they became assets of           the  business; 751      (iv) in the  case of  assets being  debts  due  to  the           person carrying on the business the nominal amount           of those debts;      (v)  in the  case of assets being cash in hand or bank,           the amount thereof. Explanation 1:  In this rule, "Computation period" means the      period for  which profits  and gains  of the industrial      undertaking or business of the hotel are computed under      sections 28 to 43A. Explanation 2:  The  value of  any  building,  machinery  or      plant or any part there of as is referred to in cl. (a)      or clause  (b) of  the explanation  at the  end of  sub      section (6)  of section  80J shall  not be taken into n      account  in  computing  the  capital  employed  in  the      industrial undertaking  or, as  the case  may  be,  the      business of the hotel. Explanation 3:  Where  the cost  of asset has been satisfied      other  wise  than  in  cash,  the  then  value  of  the      consideration actually  given for  the asset  shall  be      treated as the actual cost of the asset.      (3)  From the  aggregate of  the amount  as ascertained           under sub-rule (2) shall be deducted the aggregate           of the  amounts,  as  on  the  first  day  of  the           computation period,  of borrowed  moneys and debts           due by  the assessee (including amount due towards           any liability in respect of tax )       Rule  l9A forms  a part  of the  Income-Tax Rules 1962 which have  been framed by virtue of the authority conferred under section  295 of  the Income-tax  Act 1961. Section 295 lays down:            "(1)  The Board may subject to the control of the      Central Government,  by notification  in the Gazette of      India, make  rules for  the whole  or any part of India      for carrying out the purposes of this Act; 752           (2) In  particular, and  without prejudice  to the      generality of  the  foregoing  power,  such  rules  may      provide for all or any of the following matters:-        xxx x       It  may be  noted that  the matters  mentioned in sub- section (2) do not refer to section 80J of the Act       The relevant provisions of S. 80J as it stood prior to the impugned amendment by the Finance Act 2 of 1980 material for the purpose of the present proceedings may be set out:            "(1). Where the gross total income of an assessee

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    includes  any   profits  and   gains  derived  from  an      industrial undertaking  or a  ship or the business of a      hotel, to  which this  section applies, there shall, in      accordance with  and subject  to the provisions of this      section, be  allowed, in  computing the total income of      the assessee,  a deduction  from such profits and gains      (reduced by  the aggregate  of the  deductions, if any.      admissible to  the assessee  under section  -  80H  and      section 80HH)  of so much of the amount thereof as does      not exceed the amount calculated at the rate of six per      cent  per   annum  on   the  capital  employed  in  the      industrial undertaking or ship or business of the hotel      as the  case may  be, computed in the prescribed manner      in  respect  of  the  previous  year  relevant  to  the      assessment year  (the amount  calculated  as  aforesaid      being hereafter,  in this  section, referred  to as the      relevant amount of capital employed during the previous      year)            (2)  The deduction  specified in  sub-section (1)      shall be  allowed in  computing  the  total  income  in      respect of the assessment year relevant to the previous      year in  which the  industrial  undertaking  begins  to      manufacture or  produce articles or to operate its cold      storage plant  or plants  or the  ship is first brought      into  use   or  the   business  of   the  hotel  starts      functioning (such  assessment year  being hereafter, in      this section,  referred to  as the  initial  assessment      year) and each of the four assessment years immediately      succeeding the initial assessment year.       x x x             (4)  This  section  applies  to  any  industrial      undertaking   which    fulfills   all   the   following      conditions, namely:- 753      (i)  it is  not formed  by the  splitting  up,  or  the           reconstruction,   of   a   business   already   in           existence;      (ii) it is not formed by the transfer to a new business           of machinery  or plant  previously  used  for  any           purpose; B      (iii)     it  manufactures  or  produced  articles,  or           operates one or more cold storage plant or plants.           in any  part of  India, and has begun or begins to           manufacture or produce articles or to operate such           plant or  plants, at any time within the period of           (thirty- three  years) next  following the 1st day           of April,  1948, or  such further  period  as  the           Central Government  may, by  notification  in  the           official Gazette,  specify with  reference to  any           particular industrial undertaking; D      (iv) in  a   case  where   the  industrial  undertaking           manufactures or produces articles, the undertaking           employs ten  or more  workers in  a  manufacturing           process carried  on with  the  aid  of  power,  or           employs twenty  or more workers in a manufacturing           process carried on without the aid of power: E            Provided  that the  condition in clause (i) shall      not apply  in respect  of  any  industrial  undertaking      which is  formed as  a result  of the re-establishment,      reconstruction  or  revival  by  the  assessee  of  the      business of  any  such  industrial  undertaking  as  is      referred to  in S. 33B, in the circumstances and within      the period specified in that section;            Provided  further that, where any building or any      part  thereof   previously  used  for  any  purpose  is

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    transferred  to   the  business   of   the   industrial      undertaking, the  value of  the  building  or  part  so      transferred  shall  not  be  taken  in  to  account  in      computing  the   capital  employed  in  the  industrial      undertaking:            Provided  also that  in the case of an industrial      undertaking which manufactures or produces any articles      specified in  the list  in the  Eleventh Schedule,  the      provisions of  clause (iii) shall have effect as if for      the words  ’thirty-three years’,  the word  ’thirty-one      years’ had been substituted." 11 754      I propose to take up first the question of the validity of the  Rule. I  consider this  will be the proper course to adopt lf  the Rule  is held to be valid, the question of the amendment with  retrospective effect  may  not  require  any consideration at  all. If,  on the  other hand,  the Rule is held to  be invalid,  the question  of the  validity of  the amendment assumes  vital importance.  The invalidity  of the Rule, on  the basis of the arguments advanced, may also have a bearing  in deciding  the validity  or  otherwise  of  the amendment.      The rule must be held to be valid, if the rule is found to be in conformity with and consistent with the section If, however, the  rule is  found to  be  inconsistent  with  and contrary to  the provisions  of the section, the rule has to be pronounced invalid.      Whether  the   rule  is   in  conformity  with  and  is consistent  with   the  section   or  whether  the  rule  is inconsistent with  and contrary  to the  provisions  of  the section,  must   necessarily  be   determined  on  a  proper interpretation of the section.      Principles  of  construction  of  any  statute  or  any statutory  provision   are  well-settled.   The  purpose  of interpretation  of   any  statute  is  to  gather  the  true intention of  the Legislature.  It is  well settled that "if the words  of a  statue  are  clear  and  unambiguous,  they themselves indicate  what must  be taken  to have  been  the intention of  Parliament  and  there  is  no  need  to  look elsewhere to  discover their  intention or  their  meaning". (See Halsbury’s  Laws of  England, 4th  Edn. Vol.  44 at  P. 522). When  the words  of  a  statue  are  clear,  plain  or unambiguous, it  becomes the  duty of  the Court  to expound those words  in their  natural and  ordinary sense,  as  the words  used  themselves  best  declare  the  intent  of  the Legislature If  on a  fair reading  of a  section, the words used appear  to be  plain and unambiguous and are reasonably susceptible to  one meaning only, Courts must give effect to that meaning, unless such a meaning makes a non-sense of the section or  leads to  absurdity. The  Court is not concerned with the  policy involved  or with the results, injurious or otherwise, which  may  follow  from  giving  effect  to  the language  0  used.  In  Emperor  v.  Banoari  Lal  Sarma,(l) Viscount Simon, L.C. Observed at P.55:-      "Again and  again, this  Board  has  insisted  that  in enacted words we are not concerned with the policy involved      (1) A.I.R.. 1945 P.C.48. 755 construing or  with the  results,  injurious  or  otherwise, which A may follow from giving effect to the language used".       In  Kanti Lal  Sur v.  Paramnidhi  Sadhukhan,(l)  this Court at P. 910 held:-             "lf   the  words   used  are   capable  of   one      construction   only, then  it would  not be open to the      Courts to  adopt any other hypothetical construction on

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    the ground  that such hypothetical construction is more      consistent with  the alleged  object and  policy of the      Act".            If, however, the words of a statute are not clear      and are  ambiguous; different  considerations may apply      in interpreting  the provisions  for gathering the true      intention of  the law-giver. It is stated in Halsbury’s      Laws of  England, 4th  Edn. Vol.  44, in para 858 at P.      523, as follows:            "If  the words  of a  statute are  ambiguous, the      intention of  Parliament must  be sought  first in  the      statute  itself,   then  in   other   legislation   and      contemperaneous  circumstances   and  finally   in  the      general rules  laid down  long ago,  and often approved      namely, by  ascertaining (1)what  was  the  common  law      before the making of the Act; (2) what was the mischief      and defect  for which  the common  law did not provide;      (3) what  remedy Parliament  resolved and  appointed to      cure the  disease of the commonwealth, and (4) the true      reason of the remedy".       As  on a  fair reading  of S. 80J, I am satisfied that the section  is sufficiently  clear and  the  language  used therein suffers  from  no  ambiguity,  it  does  not  become necessary for  me in  the instant case to consider at length the principles  of interpretation  which are  required to be observed in construing an ambiguous statute.       The  material provisions  of S.  80J of the Income-tax Act, prior  to the  impugned amendment  by the  Finance Act, 1980, have  been earlier set out. The relevant provisions of the said  section provide  that where the gross total income of an  assessee includes  profits and  gains derived from an industrial undertaking or ship or the business of a hotel to which the  section applies,  there shall, in accordance with and subject to the provisions of the section, be allowed in       (1) A.l.R. 1957 S.C. 907. H 756 computing total  income of  the assessee,  a deduction  from such profits  and gains  (reduced by  the deduction, if any, admissible to  the assessee under S. 80HH or S. 80HHA) of so much of  the amount  thereof as  does not  exceed an  amount calculated @,  6 %  per annum on the capital employed in the industrial undertaking  or ship  or business of the hotel as the case  may be,  computed  in  the  manner  prescribed  in respect of the previous year relevant to the assessment year (the amount  calculated aforesaid being hereinafter, in this connection referred  to as  the relevant  amount of  capital employed during the previous year) For qualifying  for relief  under this  section, an assessee must derive profits and gains from an industrial undertaking or ship or the business of a hotel to which the section must be applicable.  It is  not in dispute that the assessees who have approached  the Court  have derived  profits and  gains from industrial  undertaking set up by them and they qualify for relief under this section.       A  plain reading  of the section with reference to the language used  therein clearly  postulates  that  relief  as contemplated in  the section is to be allowed on the capital employed in  the undertaking in the previous year, producing the profits  and gains  of the  under taking in the previous year. An  undertaking might have had capital which might not have been  employed in  the undertaking in previous year for earning profits  and gains which were earned in the previous year. Such  capital, though  forming part  of the capital of the undertaking,  will not be entitled to the benefit of the relief under  this section.  Relief is  contemplated only on

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the capital  which was  employed in  the undertaking  in the previous year  and which  produced  the  previous  year  the profits and  gains of the undertaking which were included in the total income of the assessee in the previous  year.  Relief under  this section  for the  undertaking  is clearly intended  on the capital employed in the undertaking which produced  the profits  and gains of the undertaking in the previous  year. This intention is made manifestly clear, as relief  has to be granted on the basis of the profits and gains earned  by the  undertaking in  the previous  year  by virtue of  employment of  capital in  the undertaking in the previous year.  The capital  employed  in  the  undertaking‘ which qualifies for relief under this Section clearly refers to and  must necessarily  be the  capital  employed  in  the undertaking in  the previous year for the purpose of earning the profits.  If the  capital employed in the undertaking is own capital,  such capital qualifies for relief. If  capital employed is borrowed capita], such capital will equally 757 qualify  for   relief.  If   capital  employed  consists  of assessee’s own  capital and  also his  borrowed capital, the capital so  employed, assessee’s own and borrowed, will both qualify  for   the  relief.  The  capital  employed  in  the undertaking in  the previous year which qualifies for relief under  this  section  has  to  be  computed  in  the  manner prescribed. There  is nothing  in the  section to suggest or indicate that  in prescribing  the manner  of computation of the capital  employed in  the undertaking for the purpose of relief, any  part of  the capital  which was employed in the undertaking for  producing the  profits  and  gains  can  be excluded. If  the Legislature  had any  such  intention  for excluding  any   part  of   the  capital   employed  in  the undertaking producing  profits and gains of the undertaking, the Legislature  would  have  and  could  have  easily  made suitable provisions.  The Legislature  must be  presumed  to have known  that the  capital employed in an undertaking may consist of  and, in  fact, does  consist of  assessee’s  own capital and  also capital  borrowed by  the assessee.  It is common knowledge  that most  of the  undertakings  carry  on their activities  with borrowed  capital in  addition to own capital  employed   in  the  undertakings.  Inspite  of  the knowledge of  the Legislature  that undertakings are carried on with  borrowed capital, the Legislature in its wisdom has in  this   section  mentioned   capital  employed   in   the undertaking for earning profits and gains of the undertaking without making  any  distinction  between  own  capital  and borrowed capital  and has  provided for relief in respect of the capital  employed in  the undertaking  on the  basis  of profits and  gains of  the undertaking  earned by  virtue of employment of such capital. It is not disputed and cannot be disputed that  profits and  gains of  the undertaking  to be ultimately included  in the total income of the assessee are produced by the capital, whether assessee’s own or borrowed, employed in  the undertaking  in the relevant year and while computing profits  and gains of the undertaking the borrowed capital is  as important  as the  assessee’s own capital and both play  the same role in earning the profits and gains of the  undertaking.   It  is   the  capital  employed  in  the undertaking which  qualifies for  relief under this section. irrespective  of  the  nature  and  source  of  the  capital employed  in   the  undertaking.   It  is,  however,  to  be emphasised  hat the capital to qualify for relief under this section, whether  borrowed or  own, must  be employed in the undertaking in  the previous  year for  earning profits  and gains and  any  capital  of  the  undertaking,  borrowed  or

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assessee’s own which remains idle and is not employed in the undertaking for  earning profits  and gains dose not qualify for any relief under this section- ‘ H 758      Sub-section 4  of S. 80J lays down the conditions which have to  be fulfilled  by an  undertaking to qualify for the relief granted  under this section. Even in this sub-section there is  no indication  that any  undertaking set  up  with borrowed capital  or with  capital  part  of  which  may  be borrowed will  not be  entitled to  the benefits  n of  this section. An  industrial undertaking  which satisfies all the conditions laid  down in  sub-section 4  will undoubtedly be entitled to  the benefits  of S.  80J. An  undertaking  with borrowed capital  can also  very well satisfy the conditions of sub-section  (4) and  qualify for the relief, as there is nothing in  this sub-section  which prevents  an undertaking set  up   with  wholly   or  partly  borrowed  capital  from fulfilling the conditions laid down in the sub-section 4. An undertaking satisfying all the conditions in sub-section (4) and there  by qualifying for relief if, however, set up with borrowed capital,  will be  denied the  relief to  which the undertaking in  terms of the clear provisions of the section is justly  entitled, merely  on the  ground  that  the  rule prescribed for  computing the relief excludes the borrowed ‘ capital in  the computation  of the capital employed for the purpose of  granting the relief under this section. In other words, an  industrial undertaking  qualifying for the relief under  S.  80J  by  virtue  of  the  clear  and  unambiguous provisions made  in the  section will  be denied  the relief because of  the rule,  as on computation on the basis of the rule  excluding   borrowed  capital,   no  relief   will  be available. As the sub-section in clear and unequivocal terms provides that  S. 80J will apply to such an undertaking, the benefit intended  to be  given to the undertaking under this section cannot  be denied to such an undertaking by any rule which will  clearly have  the effect of negativing the clear and unambiguous statutory provisions.       The  argument of  Mr. Palkhivala  that the  expression ’capital  employed’   is  a  term  of  art  and  is  usually understood in  business parlance  and commercial circles and also in commercial accountancy in the sense that it includes not  only  owner’s  capital  but  also  borrowed    capital, particularly if the borrowing is on a long term basis, to my mind, has  considerable  force.  It  may  be  true  that  in different context  and particularly in the context of return of  capital,  capital  employed  may  not  include  borrowed capital. Unless the content otherwise requires and except in the case  of return  of  capital,  the  expression  ’capital employed’ in  its ordinary  sense is  understood to  include borrowed capital.  It refers to the capital, whatever may be the source,  which is employed in any undertaking or venture for carrying  on the business for the purpose of earning the profits and gains. 759         In the instant case, the words capital employed have to be  A understood  and interpreted in the context the said words have  been used  in S. 80J. It is quite clear from the text of  the section  that the  words capital  employed have been used  in the  context of  the capital  which  has  been employed in the under-taking for producing profits and gains of the undertaking in the relevant year. If borrowed capital is  also  employed  in  the  undertaking,  capital  employed necessarily and clearly includes such borrowed capital which has  teen   employed  in   the  undertaking  and  which  has contributed to  the profits and gains of the undertaking. To

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my mind,  therefore, on a proper interpretation, section 80J is clear  language postulates  that capital  employed in the undertaking includes  own capital  and also borrowed capital employed in  the undertaking  in the  relevant year  and the section plainly  and unequivocally  makes this  intention of the Parliament manifestly clear.       As  the Section  is clear and unambiguous it is indeed not proper and necessary to refer to any other consideration for its  construction. It  may, however, be pointed out that this interpretation  not only  makes perfect  sense but also clearly promotes  the object  for  which  this  section  was incorporated. To  my mind, the object of S. 80J which indeed replaces the  earlier section  84 which  came in place of S. 15C of  the earlier  Income-Tax Act,  is to give impetus and encouragement  to   the  setting   up  of   new   industrial undertaking by  offering tax  incentives or tax reliefs. The object clearly  is  to  encourage  persons  to  set  up  new industrial undertakings  for rapid  industrialisation of the country by  offering incentives  in respect  of undertakings covered by this section by way of grant of tax relief on the capital employed in such undertakings.       In  the  case  of  Textile  Machinery  Corporation  v. Commissioner of Income-tax, West Bengal,(1) this Court while considering the  object of  a similar  provision in  S. 1 5C observed at page 202:             The  principal  object  of  section  15C  is  to      encourage setting  up of  new industrial undertaking by      offering tax  incentives within  a period  of 13  years      from April  1,  1948.  Section  1  5C  provides  for  a      fractional exemption  from tax  of profits  of a  newly      established undertaking  for five  assessment years  as      specified there  in. This  section was  inserted in the      Act  in  1949  by  section  13  of  the  Taxation  Laws      (,Extension to       (1) (1977) 107 I.T R. 195 760           Merged States  and Amendment)  Act 1949 (Act 67 of      ’919), extending  the benefit to the actual manufacture      or production of articles commencing from a prior date,      namely, April  1, 1948.  After the  country had  gained      independence in  1947 it  was most  essential  to  give      fillip to  trade and  industry from  all quarters. That      seems to  be the  background for  insertion of  section      15C.            It  is also  significant that  the limit  of  the      number of  years for  the purpose of claiming exemption      has been  progressively raised from the initial 3 years      in 1949  to 6  years in 1953. 7 years in 1951, 13 years      in 1956  and 18 years in 1968. The incentive introduced      in 1949  has been  thus stopped  up ever  since and the      only object is that which we have already mentioned."        In   the  case   of  Rajapopalayan   Mills  Ltd.   v. Commissioner of  Income Tax  Madras,(1) this  Court had also held at page 783:            "The  law of  income-tax in  a modern  society is      intended  to   achieve  various   social  and  economic      objectives. It  is often  used  as  an  instrument  for      accelerating economic growth and development. S. 15C is      a provision  introduced in  the . Indian I.T. Act, 192,      with a  view to  carrying out  this objective and it is      calculated to  encourage setting  up of  new industrial      undertakings in the country."        The   rapid  industrialisation  of  the  country  for economic growth  in the  larger interests  of the country is the main  object of  this section  which seeks  to afford an

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incentive or tax relief to new industrial undertakings which satisfy the requirements of the section.       To  my mind,  the argument  of  the  learned  Attorney General  that   the  provision   contained  in  the  Section requiring ’the capital employed to be computed in the manner prescribed’ authorises  the rule making authority to include or to  exclude borrowed  capital at its discretion by making appropriate provision in the rules as to exclusion of a part of the  capital employed for computation of capital employed for the  purpose of  granting relief  under the  section  is clearly untenable.  The section  only enjoins  that  capital employed is  to be  computed in  the manner to be prescribed and the       (1) (1976) 115 ITR 777. 761 manner  of   computation  of   the  capital   employed  only authorises A,  the rule  making authority  to deal  with the details  regarding   computation  of  capital  employed  for carrying out the provisions of the section and the provision regarding the  manner of  computation does  not  empower  or authorise the  rule making  authority to lay down which part of the  capital employed  or how  much of it will have to be included or  excluded  and  to  what  extent,  if  any:  The question whether  there should  be  any  such  exclusion  or inclusion in  the matter  of consideration  of the  grant of relief,  is   essentially  a   matter  of   policy  for  the Legislature to  decide and  is not  a matter  for  the  rule making authority  to prescribe. The power of the rule making authority in terms of the provision contained in section 295 of the Income-tax Act which confers such power is limited to the framing  of rules  for carrying  out the purposes of the Act. The rule making authority is not competent to prescribe any rule  which will  be in  the  nature  of  a  substantive provision of  the Act  itself and  more particularly,  which will be  in conflict  with the  substantive provision of the section itself and which will in any way defeat or frustrate the purpose  for which  any provision  in the  Act has  been enacted. In  the instant case I am clearly of the opinion on a construction of S. 80J that the said section unequivocally and in  clear  terms  provides  that  capital  employed  for earning the  profits of the undertaking is the capital which is entitled  to the  benefit of the relief. The exclusion of borrowed capital  by the  rule making authority in the rules prescribed for  computation of  the relief  under S.  80J is inconsistent with  and derogatory  to the  provisions of the statute. The  said rule  not only  fails to  carry  out  the purpose of  the said section but in fact tends to defeat the same and the rule runs clearly contrary to the provisions of the statute.  The  rule  excluding  borrowed  capital  must, therefore, be held to be bad and invalid.       The  argument of  Mr. Palkhivala  that any  such  rule framed by  the rule  making authority including or excluding any part  of the  capital employed in the undertaking in the absence of  any guideline  will also  be clearly  beyond the power of the rule making authority, to my mind. is sound. In the section  itself or  in any other provision of the Act it does not  appear that there is any provision laying down any guideline which  may entitle  the rule  making authority  to exclude any  part of  the capital  employed, whether  it  is borrowed capital  or  own  capital.  No  such  provision  or guideline is  there in  the Act. To my mind, there could not possibly be  any such  provision or guideline in the Act, as the section  itself clearly  provides that the entire amount of capital employed for earning the profits will qualify for 762

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the relief.  If it  be held  that the  rule making authority enjoys and  such power  of excluding any part of the capital employed in  the undertaking because of the provision in the section regarding  "computation of  capital employed  in the manner prescribed" it must necessarily be held that the rule making authority  enjoys  the  power    of  framing  a  rule contrary to the provision of the section. It must further be held that the rule making authority at its discretion enjoys the power  to exclude  the whole  or part of owner’s capital and also  the whole  or part  of the  borrowed capital. this interpretation will  mean that interpretation the power will be available  with the  rule making  authority which  at its discretion and  in the  absence of  any  guideline  will  be entitled to  exclude  any  or  every  part  of  the  capital employed even  to an  extent of rendering the section itself nugatory.  This  interpretation  will  have  the  effect  of justifying  a   delegation  of  power  to  the  rule  making authority to  an extent which cannot be permitted. l have no hesitation in  coming to the conclusion that the rule making authority does  not enjoy any such power or jurisdiction. No such power  or  jurisdiction  in  the  absence  of  specific provision and  clear guideline in the Act could be delegated to the rule making authority.       In  the case  of Sales  Tax Officer  v. KS. Abraham(l) this Court  had the  occasion to construe the meaning of the phrase "in the  prescribed manner" occurring in S. 84 of the Central Sales-Tax  Act, 1956.  In dealing  with the vires of rule 6  of the  Central Sales Tax (Kerela) Rules, 1967 in so far as  the said  rule purported  to prescribe  a time limit within which’  the  declaration  was  to  be  filed  by  the registered dealer, this Court held,-      "In our  opinion, the phrase ’in the prescribed manner’      occurring in  S. 8 (4) of the Act only confers power on      the rule  making authority  to prescribe a rule stating      what particulars  are to be mentioned in the prescribed      form the  nature and  value  of  the  goods  sold,  the      parties to  whom they  are sold, and to which authority      the form  is to  be furnished.  But the  phrase ’in the      prescribed manner’  in S.  8 (4)  does not  take in the      time element.  In other  words, the  section  does  not      authorise the  rule-making  authority  to  prescribe  a      time-limit within  which the declaration is to be filed      by the  registered dealer.  The view that we have taken      is supported  by the  language of  S. 13 (4) (g) of the      Act  (1) [1967] 3 S.C.R. 518. 763 which states  that the  State Government  may make rules for ’the  time  within  which,  the  manner  in  which  and  the authorities to  whom any  change in  the  ownership  of  any business or  in the  name, place  or nature  of any business carried on  by any dealer shall be furnished.’ This makes it clear that  the Legislature  was conscious  of the fact that the expression ’in the manner’ would denote only the mode in which an act was to be done, and if any time limit was to be prescribed for  the doing of the act, specific words such as ’the time within which’ were also necessary to be put in the statue.       The  Privy Council  in the case of Utah Construction & Engineering Pvt.  Ltd. and  Anr. v.  Pataky,(l) observed  at pages 653-654:       "Their  lordships now  pass to  S. 22 (2) (g) (iv) and      (v). Sub-paragraph  (iv) empowers  the Governor to make      regulations "relating  to the  manner of carrying out..      excavation work’.  The  relevant  portion  of  reg.  9X

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    provides ’Every  drive and  tunnel  shall  be  securely      protected and  made safe for persons employed therein’.      The  expression  ’manner  of  carrying  out’  the  work      plainly envisages  a system of working, and does not in      their lordships  view justify  a regulation imposing an      absolute duty  of protecting the drive and tunnel or an      absolute  duty   of  ensuring  the  safety  of  persons      employed in  the drive  or tunnal. The relevant portion      of reg.  98 does  not prescribe the manner of doing the      work. Sub  paragraph (iv)  therefore  cannot  in  their      lordships opinion  empower the  making of  the relevant      portion of reg. 98. ’ F       The  proposition that  the rule  making authority does not  have   any  power  to  encroach  upon  any  substantive provision in  the statute  appears to  be beyond dispute. By virtue of  S 295  (1) of the Income-tax Act, the rule making authority is  empowered to  make rules  for carrying out the purposes of  the Act  and sub-section  2 which  specifically refers that  such rules  may provide  for all  or any of the matters mentioned  in the  said subsection does not make any reference  to   S.  80J.   In  prescribing   the  manner  of computation of  capital employed, the rule making authority, in the  absence of  specific provision in the section itself or in the absence of any statutory provision, cannot exclude any (1) [196513 All. E.R. 650, 764   part  of  capital  employed  in  the  undertaking  at  its discretion under the guise of the process of prescribing the manner of computation.           The argument of the learned Attornney General that as an undertaking which employs borrowed capital gets relief because in  calculating the  profits and  gains the interest paid on the borrowed capital is taken into account, the rule making authority in prescribing the manner of computation of capital employed  is entitled to exclude borrowed capital to avoid grant  of double relief to the undertaking, is without any  merit.   Interest  paid  on  borrowed  capital  by  any undertaking, whether it is an undertaking within the meaning of S.80J  J or  not,  is  taken  into  account  as  business expenditure in  calculating the  profits and  gains  of  any undertaking. It  is the  prescribed mode  of calculating the profits and  gains of  every undertaking  and is  no special benefit for  any undertaking: and, undoubtedly it affords no incentive of  special relief  to a new undertaking which has necessarily to  satisfy the required conditions laid down in S 80J  for being  entitled to   the  relief intended  to  be granted to  an undertaking which comes within the purview of S.80J. In  any event,  such inclusion  or exclusion  on  any consideration will be a matter of policy to be determined by the Legislature  and  not  a  matter  for  the  rule  making authority  to   lay  down   in  prescribing   the  mode   of computation.      The decision  of the Calcutta High Court in the case of Century Enka  Ltd. v.  I.T.0.,(1) the decision of the Madras High Court  in the case of Madras Industrial Linings Ltd. v. I.T.0.(2), the  decision of the Allahabad High Court in Kota Box Manufacturing  Co. v.  I.T.0.(3)  the  decision  of  the Punjab and  Haryana High Court in the case - of Ganesh Steel Industries v.  I.T.0.(4), the decision of the Andhra Pradesh High Court in the case of Warner Hindustan Ltd. v. I.T.0.(5) holding the  rule to the extent it excludes borrowed capital in the  computation of  capital employed  for the purpose of granting relief under section 80J to be invalid, are correct and l  have no  hesitation in upholding these decisions ’The

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contrary view  expressed .  by the Madhya Pradesh High Court in the  case of Commissioner of Income Tax, M.P. Il v. Anand Bahri Steel and Wire Products(n) must necessarily be held to be erroneous. (1)  [1977] 107 ITR 123. (2)  [1977] 110 ITR 256. (3) [1980] 123 ITR 638. (4) [1980] 126 ITR 258. (5)  [1982] 134 lTR .158. (6)  [l982] 133 ITR 365. 765       It  may be  noticed that the Madhya Pradesh High Court proceeded to  hold the rule to be valid mainly on the ground that this  rule has  been in existence for a long time under S.15C of  the earlier  Act which  subsequently  came  to  be replaced by S.80J and the Parliament must have been aware at the time  of enacting  S.80J of  the existence  of the  rule framed by the rule making authority which held the field for a long  period without  any challenge. The decision proceeds on the  basis that  the  Parliament  must  have,  therefore, accepted the interpretation put by the rule making authority at the time the Parliament enacted S 80J. This decision does not take into consideration the fact that the interpretation put by  the rule  making authority has not been the same all throughout and  has undergone  changes from time to time and the  rule   making  authority  has  in  certain  years  also permitted certain  classes of  borrowed capital  to be taken into account  in computation  of capital  employed  for  the purpose of  relief. The  decision of the Madhya Pradesh High Court does  not also  take into  consideration the  question whether the  rule seeking  to include  or  exclude  borrowed capital at  the discretion  of the  rule making authority in the absence of any statutory provision or guideline, becomes bad  on  account  of  unjustified  excessive  delegation  of authority. The decision of the Madhya Pradesh High Court has not proceeded to construe S.80J correctly to gather the true intention of  the Parliament before deciding the question as to whether the rule excluding borrowed capital is consistent with the intention of Parliament clearly expressed in S.80J.       In  my opinion,  the mere existence of an invalid rule without any challenge for any length of time does not affect the question  of validity  of the  rule and  cannot render a rule otherwise  invalid to  be valid only on the ground that the rule had remained in existence without any challenge for a number of years. In the case of Proprietary Articles Trade Association v.  Attorney General for Canada(l), the Judicial Committee while  considering the  vires of a statute namely, Combines Investigation  Act R.S.  Can. 1927, c. 26 passed by the Parliament of Canada observed at p. 317:-           "Both the  Act and  the section have a legislative      history, which  is relevant  to the  discussion.  Their      Lordships entertain  no doubt  that time alone will not      validate an  Act which  when challenged  is found to be      ultra vires;  nor will a history of a gradual series of      advances till this boundary is finally crossed avail to      protect the ultimate encroachment."       In the case of Campbell College Belfast (Governors) v. Commis- (1) [1931] A.C. 310. 766 sioner  of Valuation  for Northern Ireland(l), the House of Lords while  considering the validity of payment of rates by fee paying  public school  in  Northern  Ireland  which  has continued for  over 132  year.. despite the terms of s. 2 of the Valuation  (Ireland) Act Amendment Act, 1954, held at p.

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941 to 942 :           " my Lords, for my part I am quite unable to apply      that principle  to a  statute although  it was  passed‘      over 100  years ago,  but its  language  is  plain  and      unambiguous and  it  was  not  misconstrued  until  the      decision in  the Alexandra College case 60 years later.      True it  is that  fee paying  schools did   always  pay      rates in accordance with section 2, but until 1914 that      was not  because it  was assumed that section 2 was con      trolled by  the proviso,  and that  charitable purposes      bore a  limited meaning.  It may  have been that it was      thought that  if some  of the  pupils were free paying,      section 16  of the  Act of 1852 was not satisfied. That      argument is  now untenable  n and,  as Black L.J. point      out at  an early part of his judgment, Campbell College      is clearly  for this purpose a charitable institute. My      Lords, in  these circumstances  I can  attach no weight      whatever  to   this  long   unquestioned  payment  when      construing section  2. To  my mind,  this doctrine  can      have no application to the circumstances of this case.       It  is also  well-settled that  even if the rules have been laid before the Parliament and there is a resolution of the Parliament  approving the  rules, the  validity  of  the rules has  to be  declared by  the Court  and the  Court can declare any  rule placed  before the Parliament and approved by the  Parliament to be ultra vires the Act and invalid. In the case  of  Kerala  State  Electricity  Board.  v.  Indian Aluminium(2)., this Court held at p.576:-       "In  India many  statutes both  of Parliament  and  of      State Legislatures  provide for subordinate legislation      made under  the provisions  of  those  statutes  to  be      placed on  the table  of either  the Parliament  or the      State  Legislature   and  to   be   subject   to   such      modification, amendment  or annulment,  as the case may      be, as  may be  made by  the Parliament  or  the  State      Legislature. Even  so, we  do not  think that  where an      executive authority is given power to frame subordinate      legislation within  stated limits,  rules made  by such      authority (1) [1964] I W.L.R. 912. (2) [1976] I S.C.R.552. 767       if  outside the  scope of the rule making power should be   deemed to  be valid merely because such rules have been placed before  the  legislature  and  are  subject  to  such modification, amendment  or annulment, as the case may be as the  legislature   may  think   fit.  The  process  of  such amendment, modification  or annulment is not the same as the process of legislation and in particular it lacks the assent either of the President or the Governor of the State, as the case may  be. We are, therefore, of opinion that the correct view is  that notwithstanding  the  subordinate  legislation being laid  on the  table of  the House of Parliament or the State Legislature  and being  subject to  such modification, annulment or  amendment as  they may  make, the  subordinate legislation cannot  be said  to be valid unless it is within the scope of the rule making power provided in the statute."       The  other impugned provision of the rule, prescribing that capital employed should be computed on the basis of the capital   employed on  the first  day of the year, must on a proper construction  of the  section  be  also  held  to  be invalid. The  section clearly provides that the deduction to be allowed  is to  be computed  in the  prescribed manner in respect of  the previous  year relevant  to  the  assessment year. The  deduction to  be allowed  is on  the profits  and

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gains of  the undertaking  earned in  the relevant  year  in respect of  the previous  year relevant  to  the  assessment year. Profits  and gains  which are to be taken into account are the  profits and  gains earned  in the relevant year and the year  must necessarily mean and include the whole of the year and  not some  days or  months of the year. The capital employed for  earning the posts and gains - dring the whole year must  necessarily be  the capital  which is entitled to the benefit  of the section. Capital employed on the 1st day of the  year does  not produce  the profits  of  the  entire relevant year,  unless  the  very  same  amount  of  capital remains employed  throughout the  year. It  does not usually happen and  in any  event it  may not  happen. Therefore, by prescribing the  1st day  of the  year to  be the  date of . computation of  the capital  employed, the  capital employed during the whole year is sought to be denied by the rule the benefit to  which it  is entitled  under the  section.  This provision,   therefore,   is   clearly   contrary   to   and inconsistent with  the specific provision of the statute, as by fixing  the 1st  day of  the  year  to  be  the  date  of computation of  the capital  employed for the year, the rule making authority is seeking to deny the benefit conferred by the statute.       Andhra  Pradesh High  Court  in  the  case  of  Warner Hindustan H 768 Ltd. and  Anr. v.  Income-tax Officer  and Ors.  (supra)  in dealing with  this question  has referred to the decision of the Calcutta  High Court  in Century Enka Ltd. v. Income-tax Officer (supra) on this very point and in agreement with the decisions of  the Calcutta  High Court,  the Andhra  Pradesh High Court held at p. 195:-      "As observed  by a  learned Judge  of the Calcutta High      Court in Century Enka Ltd. v. Income tax Officer(l),the      main consideration  upon which  this question has to be      resolved is  (p. 132),  ’whether having  regard to  the      purpose for  which provisions  of S. 80J of the Act was      introduced, it  was the  legislative intent to restrict      the capital employed in any manner so as to limit it to      the first  day of the computation period’. So far as S.      80  J   is  concerned,   it  does  not  give  any  such      indication. That  apart, such  computation  of  capital      employed in  an industrial undertaking would defeat the      very purpose  of the  undertaking  and  would  lead  to      incongruous and  anomalous results.  While an  assessee      who  has   employed  the   capital  in   an  industrial      undertaking on  the very first day but has withdrawn it      for the major part of the year would be entitled to the      full benefit,  an assesses  who has  not  employed  the      capital on the first day but has employed it during the      major part  of the  previous year  would be deprived of      the benefit.  If the  intendment of  the Act is to give      tax holiday  for the  new industrial undertaking with a      view to  help  them  find  their  roots  and  encourage      entrepreneur to  establish new  industrial undertakings      and pave  the way  for rapid  industrial growth  in the      country then  the purpose would be not served. In fact,      it  would  be  defeated  if  the  capital  employed  is      computed  with  reference  to  the  first  day  of  the      computation period  and not  in respect of the previous      year relevant to the assessment year".       The  Calcutta High Court and Andhra Pradesh High Court have both held this part of the rule fixing the first day of the year  for computing the capital employed for the purpose of granting  relief under  S. 80J  to be  invalid. I find no

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difficulty in  upholding the  decision of  the Calcutta High Court and of the Andhra Pradesh High Court on this question.       I  know proceed  to consider  the other question about the validity  of the  amendment of section 80J introduced by the Finance (1) [1977] 107 I.T.R. 123. 769 Act 2  of 1980. By the amendment the provisions contained in the - A rule excluding borrowed capital and fixing the first day of  the year for computation of capital employed for the purpose of relief under S. 80J have been incorporated in the section itself with retrospective effect from 1.4.72.       On  behalf of some of the assessees the amendment both with; regard  to its prospective and retrospective operation has been  challenged. Dr. D. Pal, supported by other learned counsel, addressed  us mainly  on the  aspect of prospective operation,   while    supplementing   and   supporting   the submissions of Mr. Palkhivala on the aspect of retrospective operation.  Mr.   Palkhivala  who  has  been  the  principal spokesman for  the assessees,  confined his challenge to the validity of  the amendment mainly to the retrospective part, although he  made it  clear that  he was  not conceding  the validity of the prospective operation.       I propose to consider the submission of Dr. Pal in the first instance. If the submission of Dr. Pal that the entire amendment is  invalid is  accepted, the  submission  of  Mr. Palkhivala that  the amendment  in so  far  as  it  is  made retrospective is also bad must necessarily succeed.       Dr. Pal has argued that the amendment seeks to make an invidious  distinction  between  own  capital  and  borrowed capital in the matter of granting relief under this section. It is  the argument  of Dr.  Pal that  having regard  to the object of the section which is to promote new industries and to give  relief on the basis of the capital employed in such new industries  by way of incentive, distinction between own capital and  borrowed capital  is wholly  irrelevant -,  and does not  have any  nexus  with  the  object  sought  to  be achieved  and  this  distinction  between  own  capital  and borrowed capital  in the  matter of  computation of  capital employed in  the undertaking  for the  purpose  of  granting relief results in  justified discrimination and is therefore violative of  Art. 14 of the constitution. To my mind, there is no  merit in  the submission of Dr. Pal. It is entirely a matter for  the Parliament  to decide  whether any relief by way of  incentive should be allowed and if so to what extent and in  what manner.  There is  no obligation on the part of the Parliament  to make any provision for granting relief to promote new  industries. The  Legislature in  its wisdom may decide to grant relief and may equally decide  not to  grant any  relief. It is essentially for the  Legislature to  decide as  to whether any incentive for promoting industrial growth of the country is called for and if the Legislature feels that in the 770 situation prevailing in the country such incentive should be provided it will be again for the Legislature to decide what kind of  incentive and  in what  form and to what extent the same should  be provided and to pass appropriate legislation in this  regard. The  Parliament  would  have  been  legally competent to  withdraw the  entire relief  under section 80J and to  abrogate the  said section  in its  entirety, if the Parliament had  considered such  withdrawal to be necessary. The Parliament  is equally  competent to  increase or reduce the quantum  of relief  intended  to  be  given  under  this section. In  providing that  relief intended  under  S.  80J

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would be  allowed only to owner’s own capital and not to any borrowed capital,  there can  be no infringement of Art. 14. No entrepreneur  or businessman  can claim  as a  matter  of right that  relief by way of incentive should be provided to new undertakings  to  be  set  up  by  him.  The  Parliament provides for such relief in pursuance of a policy and policy may change  from time  to time  in  view  of  the  situation prevailing  from   time  to   time.   The   Parliament   may legitimately feel  that borrowing  by businessman may not be encouraged and  persons should  be encouraged to bring their own money for setting up new undertakings and Parliament may provide for  appropriate relief  by way of incentive  to the owner’s  capital  employed  to  the  exclusion  of  borrowed capital in the setting up of any new industrial undertaking. Whether it  is prudent  to do so is essentially a matter for the Parliament  in its  wisdom to decide. It is not for this Court to  sit in  judgment over the wisdom of the Parliament in the  framing of  its policy.  The discrimination  in  the matter of granting relief to own capital to the exclusion of borrowed capital  in pursuance of a policy cannot be said to be violative  of Art  14, as  the two  classes  of  capital, though  forming   a  part   of  the  total  capital  of  the undertaking, are  distinct p  and they  stand on a different footing. A  classification  between  these  two  classes  of capital for encouraging investment of own capital in setting up  new  industrial  undertakings,  cannot  be  held  to  be unreasonable and unjustified. The contention of Dr. Pal that the amendment in discriminating between borrowed capital and owner’s own capital in the enjoyment of relief under section 80J infringes  Art. 14,  must therefore,  be rejected.  Very properly in  challenging the validity of the amendment in so far as  it operates prospectively, no grievance in regard to violation of Art. 19 of the Constitution has been made.       I  now pass  on to the question of the validity of the amendment with retrospective effect from 1.4 1972.             It has been contended by the learned counsel for the  assessees  that  the  retrospective  operation  of  the provision is unreasonable   arbitrary  and  violative  of  Arts.  14  and  19  of  the Constitution. The 771 main argument  is that  the withdrawal  of relief granted by the statute  A before  the present  amendment  and  lawfully enjoyed by  the assessee  during all these years and thereby imposing  on   the  assessee   an  unjust,   unmerited   and accumulated huge  financial liability,  cannot be considered to  be   reasonable;  and  such  imposition  of  accumulated liability will  seriously affect  the financial stability of the undertakings  and  will  further  create  various  other difficulties  which   may  be   almost  impossible  for  the assessees to  overcome. It  has been argued that the present amendment has  not been  necessitated as  a  result  of  any provision of  the statute being declared ultra vires for any lacuna in  the statutory  provision and there is no question of  any   liability  being  foisted  on  the  Government  of refunding any  large sun  of money collected as tax from the assessees on account of any statutory provision imposing any levy being  declared  invalid  or  unconstitutional.  It  is submitted that  in view  of the unequivocal provision of the statute granting relief to borrowed capital which was sought to be  negated and  denied by an invalid rule which has been struck down,  the assessees are legitimately entitled to the relief and  they have rightly and justifiably arranged their affairs on  the basis  of the law as it stood. The existence of an invalid rule and the tendency of appeals in this Court

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against the  judgment of  the various  High Courts declaring the rule  to be  invalid cannot be considered to be relevant factors, particularly when the statutory provision is clear, for guiding  the assessee  who has  to carry  on its  normal trading activities, in arranging its affairs. The submission is that  the  withdrawal  or  relief  lawfully  granted  and properly enjoyed  by the  assessees after this long lapse of time, when no serious prejudice is caused or is likely to be caused to the public exchequer and on the other hand a heavy unwarranted financial  burden along  with other difficulties and problems are created for the assessee, cannot be said to be in  public interest  and must be held to be unreasonable, arbitrary  and   violative  of   Art.  14   and  19  of  the Constitution.              The learned Attorney General has submitted that retrospective operation  of the  provision does  not  suffer from any  infirmity and is not arbitrary or unreasonable nor is it  violative of  Art. 14  and 19 of the Constitution. He argues that  prior to  rule 19-A being considered by some of the tribunals  and by  various High  Courts, the  said  rule excluding borrowed  capital in  the matter of computation of relief and  fixing the  1st day  of the year as the relevant date for the computation of relief has remained in force for a number  of years.  It is  his argument that after the said rule had been struck down, the validity of the decisions has been challenged  and was  pending appeal  in this Court; and the appeal was pending at the time when the present 772 amendment came  to b  enacted in  1980. The Learned Attorney General  contends  that  as  rule  19-A  excluding  borrowed capital and fixing the first day of the year as the date for computation of  relief had remained in force for a number of years and  as the  decision striking  down the  rule is  now pending  appeal,   the  assessees   were  not  justified  in arranging their  affairs on the basis of the said rule being invalid and  as prudent  men of business they should have so arranged their  affairs as  to cover  every contingency  and particularly the  contingency of  the validity  of the  rule being upheld by this Court. The Learned Attorney General has submitted that  the amendment has been introduced before the decision of  this Court  in  the  pending  appeals,  as  the Parliament wanted to clarify the position in the interest of all concerned  and more  so in the interest of the assessees to enable  the undertakings which qualified for relief under S. 80J  to enjoy the benefit intended to be conferred by the Section. It  is  the  submission  of  the  Learned  Attorney General that  in the  absence of  any valid rule prescribing the manner  of computation  of relief  to which the assessee may be entitled under S. 80J, the benefit cannot be computed and, therefore,  no benefit contemplated under S. 80J may be at all  available to  the assessees.  He submits that if the rule is held to be valid by this Court in these appeals, the arguments of the assessee that the assessee has arranged its affairs on the basis of invalidity of the rule will be of no avail; and  he further  submits that  if the  invalidity  is upheld by  this Court  in these appeals, the assessee in the absence  of   any  valid  rule  prescribing  the  manner  of computation of  the relief  will  not  be  entitled  to  the benefit  of   any  relief  under  the  section.  It  is  his submission that  in these  circumstances the Parliament with the object  of seeing  that the  assessee who is entitled to any relief under S. 80J is not denied such relief over these years for  lack of  provision of a suitable rule prescribing the manner  p of computation of such relief, has amended the section itself  with retrospective  effect from  1972 in the

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interest of  the assessees them selves. It is the submission of  the   Attorney  General   that  as  the  amendment  with retrospective  effect  has  been  made  essentially  in  the interest of the assessees to enable them to enjoy the relief intended to  be given under S. 80J, the retrospective effect of the  amendment cannot  be  said  to  be  unreasonable  or arbitrary and  the retrospective  amendment dose not violate either Art.  14 or  19 of  the  Constitution,  even  if  the retrospective effect may operate harshly on some assessees.       Before considering the arguments advanced on behalf of the parties, I propose at this stage to refer to some of the decisions cited from the Bar on this aspect. 773        In   the  case   of  Epari  Chinna  Krishna  Moorthy, Proprietor Epari  A Chinna Moorty and Sons, Berhampur Orissa v. State of Orissa,(l) it was observed at p. 191:-           "Mr. Sastri  also argued  that  the  retrospective      operation of the impugned section should be struck down      as unconstitutional, because it imposes an unreasonable      restriction on the petitioners’ fundamental right under      Art. 19  (1) (g).  It is  true that  in considering the      question as to whether legislative power to pass an Act      retrospectively has  been reasonably  exercised or not,      it  is   relevant  to  enquire  how  the  retrospective      operation operates. But it would be difficult to accept      the argument  that because  the retrospective operation      may operate  harshly in  some  cases.,  therefore,  the      legislation itself  is invalid. Besides, in the present      case, the  retrospective operation dose not spread over      a very  long period  either. Incidentally,  it  is  not      clear from  the record  that the  petitioners  did  not      recover sales  tax from  their customers when they sold      the gold ornaments to them". D       In  the case  of Rai  Ram Krishna  & Ors.  v. State of Bihar(2). this Court observed at pp. 914-917:-       "Mr.  Setalvad contends  that since it is not disputed      that the retrospective operation of a taxing statute is      a  relevant   fact  to   consider  in  determining  its      reasonableness, it may not be unfair to suggest that if      the retrospective  operation covers  a long period like      ten years,  it should  be held  to impose a restriction      which is  unreasonable and as such, must be struck down      as being unconstitutional. In support of this plea, Mr.      Setalvad has  referred us  to the  observations made by      Sutherland. ’Tax  Statute,’ says  Sutherland, "nay   be      retrospective if the legislature clearly so intends. If      the retrospective  feature of  a law  is arbitrary  and      burdensome, the  statute will  not  be  sustained.  The      reasonableness of  each retrospective  tax statute will      depend on  the circumstances  of each  case. A  statute      retroactively imposing  a tax  on income earned between      the adoption  of an  amendment making  income  taxestes      legal and  the passage  of the  income tax  Act is  not      unreasonable Likewise  an Income  tax  not  retroactive      beyond the  year of  its passage  is clearly valid. The      longest (1) [1964 7] S.C.R. 185. (2) [1964] I S.C.R.897 774 period of  retroactivity yet sustained has been three years. In general,  income taxes are valid although retroactive, if they affect prior but recent transaction.’ Basing himself on these observations  Mr. Setalvad  contends  that  since  the period covered  by the  retroactive operation  of the Act is between April  1, 1950  and September 25, 1961, it should be

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held that  the  restrictions  imposed  by  such  retroactive operation are unreasonable, and so, the Act should be struck down in  regard to  its retrospective  operation. We  do not think that  such a  mechanical test  can be applied in deter mining the  validity of  the retrospective  operation of the Act. It  is conceivable  that cases  may arise  in which the retrospective operation  of a  taxing or  other statute  may introduce such  an  element  of  unreasonableness  that  the restrictions imposed  by it may be open to serious challenge as unconstitutional,  but the  test of  the length  of  time covered by  the retrospective  operation cannot,  by itself, necessarily be  a decisive test. We may have a statute whose retrospective operation  covers a comparatively short period and yet  it is  possible that  the nature of the restriction imposed by  it may  be of such a character as to introduce a serious infirmity  in the  retrospective operation.  On  the other hand  we may get cases where the period covered by the retrospective operation  of the  statute, though  long, will not introduce  any  such  infirmity.  Take  the  case  of  a Validating Act.  If a  statute passed  by the legislature is challenged in  proceedings before a Court, and the challenge is ultimately  sustained and  the statute is struck down, it is not  unlikely that  the judicial proceedings may occupy a fairly long  period and  the legislature  may well decide to await the final decision in the said proceedings before it p uses its  legislative power to cure the alleged infirmity in the earlier Act. In such a case, if after the final judicial verdict is pronounced in the matter the legislature passes a validating Act, it may well cover a long period taken by the judicial proceedings  in  Court  and  yet  it  would  be  in appropriate to hold that because the retrospective operation covers a  long period, therefore, the restriction imposed by it is  unreasonable. That  is why  we think  the test of the length of time covered by the retrospective operation cannot by itself be treated as a decisive test". It the  case of  Jawaharlal v.  State of Rajasthan & Ors.(l) this Court held at p. 905:- (1) [l966] 1 S.C.R.890. 775           "We have  already stated  that the  power to  make      laws A  involves  the  power  to  make  them  effective      prospectively as  well as retrospectively, and tax laws      are no  exception to  this rule. So it would be idle to      contend that  merely because  a taxing statute purports      to operate retrospectively, the retrospective operation      per se  involves contravention of the fundamental right      of the  citizen taxed under Art. 19(1)(f) or (g). It is      true that  cases may  conceivably occur where the Court      may  have  to  consider  the  question  as  to  whether      excessive  retrospective   operation  prescribed  by  a      taxing statute  amounts to  the  contravention  of  the      citizens’ fundamental right; and in dealing with such a      question, the  Court may  have to take into account all      the relevant and surrounding facts and circumstances in      relation to the taxation".       In  the case  of Assistant  Commissioner of Urban Land Tax v.  The Buckingham  & Carnatic  Co. Ltd.l  etc.  it  was observed at P.287:-       "It is contended on behalf of the petitioners that the      - retrospective  operation of  the law  from 1st  July,      1963 would  make it  unreasonable.  We  are  unable  to      accept the  argument of  the petitioners as correct. It      is not  right to  say as a general proposition that the      imposition of  tax with  retrospective  effect  per  se      renders the  law unconstitutional.  In E:  applying the

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    test of  reasonableness to  a taxing  statute it  is of      course a  relevant consideration  that the tax is being      enforced with  retrospective effect  but  that  is  not      conclusive in itself".       In  the case of M/s. Krishnamurthi & Co. Etc. v. State of p Madras & Anr.(2j this Court observed at P. 61:-       "The  object of  such an  enactment is  to remove  and      rectify the  defeat in  phraseology or  lacuna of other      nature and  also to validate the proceedings, including      realisation of tax, which have taken place in pursuance      of the  earlier enactment  which has  been found by the      Court to  be vitiated by an infirmity. Such an amending      and validating Act in - the very nature of things has a      retrospective operation.  Its aim  is to effectuate and      carry out  the object  for which  the earlier principal      Act had been enacted. Such an amending (1) [1970] I S.C.R. 268. (2) 1197312 S.C.R. 54, i 11 776       and  validating  Act  to  make  small  repairs’  is  a permissible mode  of legislation  and is frequently resorted to in fiscal enactments."       Similar  observations have  been made by this Court in the case of Hira Lal Rattan Lal etc. etc. v. State of U.P. & Anr. etc(l) at P. 511:-           "A feable  attempt  was  made  to  show  that  the      retrospective levy  made under  the Act is violative of      Art. 19(t) (f) and (g). But we see no substance in that      contention. As  seen earlier,  the amendment of the Act      was necessitated  because of  the legislature’s failure      to bring out clearly in the principal Act its intention      to separate  the processed  or split  pulses  from  the      unsplit   or    unprocessed   pulses.    Further    the      retrospective amendment  became necessary  as otherwise      the State would have to refund large sum of money".                In the  case of State of Gujarat v. Ramanalal Keshave Lal Soni(2), this Court observed at p. 62:-       "The Legislature is undoubtedly competent to legislate      y with  retrospective effect to take away or impair any      vested right acquired under existing laws but since the      laws are made under a written Constitution, and have to      conform to do’s and don’ts of the Constitution; neither      prospective nor retrospective laws can be made so as to      contravene fundamental rights. The law must satisfy the      requirements of  the  Constitution  today  taking  into      account the  accrued or  acquired rights of the parties      today. The  law cannot say 20 years ago the parties had      no  rights,   therefore,  the   requirements   of   the      Constitution will be satisfied if the law is dated back      by 20  years. We are concerned with today’s rights an-i      not yesterday’s.  A legislature  cannot legislate today      with reference  to a  situation that  obtained 20 years      ago  and   ignore  the   march  of   events   and   the      constitutional rights  accrued  in the  course of the 20 years. That would be most arbitrary, unreasonable and a negation of history".       The  power and  competence of  the Parliament to amend any  (1) [1973] 2 S.C.R. 502.  (2) [1983] 2 S.C.C. 33. 777 statutory provision  with  retrospective  effect  cannot  be doubted. Any  A retrospective  amendment to  be valid  must, however, be  reasonable and  not arbitrary  and must  not be violative of  any of the fundamental rights guaranteed under

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the Constitution. The mere fact that any statutory provision has been  amended with  retrospective  effect  does  not  by itself make  the amendment unreasonable. Unreasonableness or arbitrariness  of  any  such  amendment  with  retrospective effect has  necessarily to  be judged  on the  merits of the amendment in  the light of the facts and circumstances under which such amendment is made. In considering the question as to whether  the legislative  power to amend a provision with retrospective operation  has been  reasonably  exercised  or not,  it   becomes  relevant   to  enquire  as  to  how  the retrospective effect of the amendment operates. C       In  the  large  interest  of  administration  and  for promotion of  public interest  and welfare  of  the  country power  has   been  conferred  by  the  Constitution  on  the Parliament to mobilize resources and to levy tax. In view of the complexity  of fiscal adjustment of diverse elements the Parliament necessarily  enjoys a very wide discretion in the matter of  fiscal legislation.  To meet various expenses for proper administration,  maintenance of defense and security, for promoting  peace and  prosperity and  for development of social, economic  and all  round growth  of the country, the Government must  have resource  and sufficient  funds at its disposal. Suitable  provisions have  necessarily to  be made for raising  the revenue and for proper realisation of funds to  be   collected  to   meet  such   expenses.  Appropriate legislations including  various fiscal  laws are enacted for this purpose.  Imposition of  any tax  by the  Parliament is therefore considered  to be  made in public interest. It may so happen  that any  provision of  any enactment  imposing a particular levy  may be  challenged  in  Court  and  may  be challenged successfully;  and the  particular levy  may, for some  reason  or  other,  be  held  to  be  constitutionally invalid. If any particular provision of any statute imposing any tax which has been or is being collected, is struck down as unconstitutional,  the financial arrangement of the State may become upset and the Government which might have already collected and  even utilised  the tax, may be called upon to refund taxes  so collected.  If such  a situation arises the economy of the State may get unbalanced and difficulties may arise for  meeting the  various commitments and obligations. Under such  circumstances a Validating Act may be passed and is often  enacted to remove the infirmities which might have led to  the invalidation of the provision imposing the levy. Validating Acts for meeting such situations have necessarily to be passed with retrospective operation so that the fiscal arrangement of the State and its financial commitments 778  may  not in  any way  be in  jeopardy and  the State may be relieved of  the liability  of  refunding  any  tax  already collected. A  validating Act validating any fiscal provision with retrospective  operation is  usually  held  not  to  be unreasonable or  arbitrary. In  the case  of any  Validating Act, the  intention of  the legislature  is  generally  made sufficiently clear  in the  section or  in the  Act which is declared invalid  on account of some flaw or defect which is within the  competence of  the Parliament  to rectify.  Such Validating Acts, it may be observed, do not in fact have the effect of imposing a fresh tax with retrospective effect and they only  legalese the  levy already  imposed. There  is in effect and  substance no  imposition of  any new tax for the earlier years  by virtue  of the retrospective operation and the  retrospective   operation  merely  validates  the  levy already  imposed   and  possibly   collected.  The   present amendment, has been necessitated not as a result of any part of S.  80J being  declared invalid.  There was  no lacuna or

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defect in  section 80J  prior to  the impugned amendment and the section  which was  perfectly valid  granted  relief  in clear and unambiguous language to the assessee in respect of capital employed,  whether assesses’  own or borrowed, in an undertaking which  qualified for  relief under  the section. The rule  making authority by framing an invalid rule sought to deny  the asks  the benefit  of the  relief lawfully  and validly granted by the section. The rule was contrary to the clear provisions  of the  statute and  the invalid  rule has been rightly  struck down.  By  the  present  amendment  the Parliament is  seeking to  validate not any provision of the State declared  invalid because  of any  flaw or  defect, as there was  none, but  is seeking to validate an invalid rule which had  sought to  deprive the  assessee of  the  benefit which the Parliament had clearly bestowed on the assessee by the section.  The effect of the present amendment by seeking to incorporate  the provisions  of the rule declared invalid in the  section itself  is to  withdraw  with  retrospective effect the  relief which  had been  earlier granted  by  the Parliament in  so far  as the  relief  extends  to  borrowed capital employed in the undertaking and thereby to impose on the assessee  a burden  of tax  which was  not there for all these years.  As a  matter of  policy it  may be open to the Parliament  to  withdraw  the  relief  granted  to  borrowed capital by  an amendment  with prospective effect consequent on any such amendment. To withdraw with retrospective effect the benefit  of relief  unequivocally granted by the section to an  assessee  who  qualified  for  such  relief  and  was lawfully entitled  to enjoy  the benefit  of such relief and has in  fact in many cases enjoyed the benefit for all these years, prior  to the  present amendment  with  retrospective effect, cannot,  in my  opinion, be  said to on any just and valid grounds  and cannot be considered to be reasonable. If any fiscal  statute grants  relief to  any assessee  and the assessee enjoys the benefit of that relief, 779 as the  assessee is  legally entitled under the statute, the withdrawal of  the relief  validly and unequivocally granted and enjoyed  by any  A  assessee  must  necessarily  in  the absence of  proper grounds  be held  to be  unreasonable and arbitrary. The  relief granted  under section 80J before the present amendment  was not  merely a  promise on the part of the Government  relying on which the assessee might have set up new undertakings, but it was in the nature of a statutory right confer-  red on  any assessee  might have  set up  new undertakings, but  it was in the nature of a statutory right conferred on  any assessee  who qualified  for  such  relief under the  section. The withdrawal with retrospective effect of any  relief granted  by a valid statutory provision to an assessee, depriving  the assessee  of  the  benefit  of  the relief vested  in the assessee, stands on a footing entirely different from the footing which may necessitate the passing of a  Validating  Act  seeking  to  validate  any  statutory provision declared  unconstitutional. When Parliament passes an amendment  validating any provision which might have been declared invalid  for some  defect or lacuna, the Parliament seeks to  enforce its  intention which  was already there by removing the  defect or  lacuna. The Parliament indeed seems to remedy the situation created as a result of the statutory provision  being   declared  invalid.   As  I  have  earlier observed, this  is done  in  public  interest  for  properly regulating  the   fiscal  structure   and  to   relieve  the Government of any financial burden by way of refund of taxes collected for  enabling the State to implement its budget by proper collection  of revenue  expected to be realised. When

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the Parliament  in any  fiscal statute proposes to grant any relief to any assessee the Parliament must be presumed to do so in  public interest.  In the  instant  case  section  80J granted relief  for the  purpose of promoting the industrial growth of the country by affording incentive for the setting up of  new undertakings.  As a  matter of  policy again  the Parliament may  withdraw such  relief or any part thereof or modify the  nature, extent and kind of relief, if Parliament may withdraw  such relief  or any part thereof or modify the nature, extent  and kind  of relief,  if Parliament  in  its wisdom may consider any such action necessary and proper and any such act done by the Parliament must also be regarded to have been  done in  public interest. However, the withdrawal or modification  with retrospective  effect  of  the  relief properly granted  by the  statute to  an assessee  which the assessee has lawfully enjoyed or is entitled to enjoy as his vested statutory  right depriving the assessee of the vested statutory right,  has the  effect of  imposing a  levy  with retrospective effect  for the  years for  which there was no such levy and cannot, unless there be strong and exceptional circumstances justifying such withdrawal or modification, be held to  be reasonable  or in  public interest. This kind of retrospective  amendment,   seeking  to  defeat  an  accrued statutory right 780 is likely  to affect  the sanctity of any statuory provision and may A create a state of confusion. The only circumstance which appears  to have  led  to  the  present  retrospective amendment  is   the  existence  of  the  invalid  rule.  The existence of  any invalid rule seeking to deny an assessee a benefit clearly  and unequivocally granted to an assessee by the Legislature,  lawfully and  properly enjoyed  or  to  be impugned amendment  in 1980 the relief granted by S. 80J had been in  force and  had been  legitimately available  to the assessee. In view of the clear provision made in the statute by Parliament itself the Parliament must be presumed to have been aware  that the relief as contemplated under S. 80J was available to the assessee and the assessee had been enjoying and were  entitled to  enjoy the benefit of the said relief. The Parliament  must have  and in any event must be presumed to have  arranged the  financial affairs of the State on the footing that  the relief allowed to an assessee under S. 80J was being  enjoyed and  would be  enjoyed by the assessee In view of  the clear  provision of  the statute  which must be held to  manifest the  true intention  of the  Parliament it will be  idle to contend that Parliament could have intended that the  relief so  granted would  not be  available to the assessees who would be liable to pay a larger amount of tax. The years for which relief had remained in force had already passed out.  It does  not appear  that as  a result  of  the relief enjoyed  by the  assessee, the  financial position of the state  for all  these years, had been or could be in any way affected.  The  facts  and  circumstances  also  do  not indicate that there will be any heavy burden on the State to sound taxes  collected which  may upset  the economy  of the State. It  appears that  in the  majority of  the cases, the assessees have  succeeded and  they have been assessed after being allowed  the relief and under S. 80J in respect of the borrowed capital also.       On the other hand it is quite clear that if the relief granted is to be withdrawn with retrospective operation from 1972 the assessees who have enjoyed the relief for all those years will  have to  face a very grave situation. The effect of the withdrawal of the relief with retrospective operation will be  to  impose  on  the  assessee  a  huge  accumulated

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financial burden  for no  fault of  the assessee and this is bound  to   create  a  serious  financial  problem  for  the assessee. Apart  from the  heavy financial  burden which  is likely to upset the economy of the undertaking, the assessee will have  to face other serious problems. On the basis that the relief  was legitimately  and legally  available to  the assessee, the  assessee had  proceeded to act and to arrange its affairs.  If the  relief granted  is now permitted to be withdrawn with  retrospective operation, the assessee may be found guilty  of violation  provision of other state and may be visited with panel consequen- 781 ces. This  position cannot  be and  is not  disputed by  the learned A  Attorney General  who has,  however, argued  that taking   into   consideration   the   peculiar   facts   and circumstances, penal  provisions may  not be  enforced. This argument does  not impress  me. The  assessee  has,  in  any event, to  run the  risk and for no fault on his part has to place itself  at the  mercy of  the authorities  for  facing consequences of violation of statutory provisions, which but for the  introduction of  retrospective amendment, would not have been violated by the assessee.       To establish arbitrariness or unreasonableness it does not become  necessary to  prove that  the undertaking of the assessee will  be completely  crippled and  will have  to be closed down  in consequence  of the withdrawal of the relief with retrospective  effect. There  cannot be any doubt about the real  possibility of very serious prejudice being caused to the assessee for no fault of the assessee. In my opinion, the possibility  of very  grave prejudice to the assessee by the withdrawal  of the  relief with retrospective effect, in the absence  of  any  justifiable  ground  and  any  serious prejudice  to   the   interest   of   revenue,   establishes unreasonableness  and  arbitrariness  of  the  retrospective amendment is  bound to  have  very  serious  effect  on  the assessee and there is reasonable possibility of the business of the  assessee  being  adversely  affected  and  seriously prejudiced. The  retrospective amendment, therefore, is also violative of Art- 19 (1) (g) of the Constitution.        The   argument  of  the  Attorney  General  that  the amendment had  to be  made with  retrospective effect in the interest of  the assessee,  as otherwise, the assessee would not be entitled to the benefit of there- lief intended to be given under  the section because there will be no valid rule for computing  the relief, to my mind, is clearly untenable. I see  no reason as to why there should be any difficulty in the computation of relief if the invalid part of the rule is struck down.  It may  be noted  that the  rule in  so far it excludes borrowed  capital and  fixes the  first day  of the year for  computation of  the relief had been struck down by various High  Courts years ago and the assessing authorities have found  no difficulty  in computing  the relief  and  in proceeding to complete the assessment by granting the relief legally available  to assessee  under S.  80J even after the invalid part  of the  rule had been struck down. It may also be noted  that the  Parliament had  also not  considered  it necessary to  effect this  amendment earlier  inspite of the decisions of  the High  Courts, although  the Parliament had introduced other amendments into this section.        Before  concluding  I  wish  to  emphasise  that  the withdrawal with  retrospective effect  by amendment  of  any financial benefit or 782 relief granted  by a  fiscal statute must ordinarily be held to be  unreasonable and  arbitrary. Such  withdrawal makes a

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mockery of beneficial statutory provision and leads to chaos and confusion  Such withdrawal  in  effect  results  in  the imposition of  a levy  at a  future date  for past years for which there  was no  such levy  in the  relevant years.  The imposition of  any fresh  tax with  retrospective effect for years for   which  there was  no such  levy is  entitled  to arrange and  normally arranges  his financial affairs on the basis of  the law  as it exists. Such retrospective taxation imposes an  unjust and unwarranted accumulated burden on the assessee for  no fault  on his  part and the assessee has to face unnecessarily  without any  just  reason  very  serious financial and  other problems.  Imposition of  any tax  with retrospective effect   for  years for  which no such tax was there, cannot  also be  considered to be just and reasonable from the  point of view of revenue. The years for which levy is sought  to  be  imposed  with  retrospective  effect  had already passed  and there cannot be any proper justification for imposition  of any  fresh  tax  for  those  years.  Such retrospective taxation is likely to disturb and unsettle the settled  position;   and  because   of  such  imposition  of retrospective levy for the years for which there was no such levy, assessments  for those  years which might already have been completed and concluded will get upset. If the State is in need  of more funds, the State instead of seeking to levy any  tax   with  retrospective   effect  can   always   take appropriate steps  to collect  any larger amount so required by imposition  of higher  taxes or  by  other    appropriate methods. I  have already observed that Validating Acts which seek to  validate the  levy of  any tax  with  retrospective effect  do   not  in   effect  impose  any  fresh  tax  with retrospective  effect   and  Validating  Acts  stand  on  an entirely different  footing. T,  therefore,  hold  that  the impugned amendment  in so  far as  it is  sought to  be made retrospective with  effect from the 1st day of April 1972 is invalid and   unconstitutional,  though the  amendment in so far as it operates prospectively is valid.       In the result I dismiss the appeals filed by the Union of India  against the decisions of the High Courts declaring Rule 19-A  to be invalid in so far as the said rule excludes borrowed capital  and fixes  the first  day of  the year for computation of  the relief  to be  granted to   an  assessee under S.80J.  I set aside the judgment of the Madhya Pradesh High Court  which upholds  the validity  of the  Rule and  I allow the appeal of the assessee against the judgment of the Madhya Pradesh High Court. I hold and declare that Rule 19-A is so  far as  it seeks  to exclude the borrowed capital and fixes the  first day  of the  year for  the  computation  of relief under  S. 80J is invalid and unconstitutional and the same has to be struck down and has been struck down 783 by the  various High  Courts. I  hold and  declare that  the impugned amendment  of 1980  incorporating the  provision of the invalid  rule l9-A  in the section itself, excluding the borrowed capital  and fixing  the first  day of the year for computation of  the relief  under S.  80J is  valid  in  its prospective operation  from the date of the amendment and is unconstitutional and  invalid insofar  as the said amendment is sought  to brought  into operation  retrospectively  with effect from  1st B April 1972. Accordingly, I allow the writ petitions challenging  the validity of the amendment only to the extent  of its retrospective operation and I dismiss the writ petitions in so far as the amendment in its entirety is sought to  be challenged.  I propose  to make no order as to costs.       In  view  of  the  majority  decision,  all  the  writ

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petitions are  dismissed and  both the parties to bear their own costs. C  A.P.J.                                  Petitions dismissed 784