1984-VIL-74-ITAT-

Equivalent Citation: ITD 007, 845,

Income Tax Appellate Tribunal MADRAS

Date: 11.01.1984

SUNDARAM FINANCE LIMITED.

Vs

INSPECTING ASSISTANT COMMISSIONER.

BENCH

Member(s)  : CH. G. KRISHNAMURTHY., DR. S. NARAYANAN., C. KOCHUNNI NAIR.

JUDGMENT

Per Dr. S. Narayanan, Accountant Member --- The question to be decided in this appeal concerns the interpretation of section 37(3) of the Income-tax Act, 1961 ('the Act') read with rule 6D of the Income-tax Rules, 1962. Delhi Bench 'E' of the Tribunal had occasion to consider this aspect in the case of Bharat Commerce & Industries v. ITO [IT Appeal No. 53 and 538 (Delhi) of 1980 : Assessment year 1975-76] reported in [1981] 7 Taxman 194 (Delhi). By its order dated 22-5-1981 in Bharat Commerce & Industries' case the Tribunal held that the period spent by an employee in staying on duty at a place outside the headquarters was not period spent in travelling and, hence, the daily allowance paid for such period was outside the disallowance prescribed by section 37(3)/rule 6D. After laying down this principle, the Delhi Bench sent the case back to the ITO for determining the admissibility of the expenditure claimed after taking into account the actual period spent by the employee outside his headquarters in conducting the business of the assessee. The Delhi Bench further directed that such expenditure would have to be considered for deduction with reference to the provisions of section 37(1) free of the restriction contained in section 37(3). A similar issue came up for decision before the Madras Bench 'C' of the Tribunal in the case of the assessee here. The Madras Bench found it difficult to agree with the reasoning and conclusion of the Delhi Bench noted supra and suggested that the appeal of the assessee here be heard by a Special Bench. This is how the matter has come up before us.

2. The assessee is a public limited company. It carries on business in hire-purchase, finance and has also income from other sources. The previous year ended on 31-12-1979. The first objection relates to the rejection by the authorities below of the assessee's claim for deduction of surtax liability of Rs. 39,197 from its profits this year. We find that a Special Bench of the Tribunal held that such a deduction was not allowable, in Amar Dye-Chem. Ltd. v. ITO [1983] 3 SOT 384 (Bom.). Following with respect this order of the Special Bench, we reject the assessee's objection in this regard.

3. The next objection is as under :

"The Commissioner of Income-tax (Appeals) erred in sustaining the disallowance of Rs. 9,160 as part of travelling allowance under rule 6D of the Income-tax Rules, 1962, notwithstanding the decision in favour of the appellant and against the revenue by the ITAT 'E' Bench, Delhi, in the case of Bharat Commerce & Industries v. ITO reported in [1981] 7 Taxman 194 (Delhi)."

Along with the return of income filed on 3-6-1980, the assessee had furnished a statement of computation of income for tax purposes. In this the assessee itself had added back Rs. 9,160 as part of travelling expenses not allowable in terms of rule 6D. However, by its letter dated 17-11-1981 to the ITO, the assessee pointed out that it had "disallowed Rs. 9,160 towards 'travelling expenses' in excess of limit under rule 6D". It then went on to rely on the decision of the Delhi Bench of the Tribunal in Bharat Commerce & Industries' case and claimed that in view of that decision, 'the above amount becomes an allowable expenditure and, accordingly, we have recomputed the business income'. The IAC (Assessment), however, rejected this claim on a reading of rule 6D. He, therefore, disallowed the expenditure of Rs. 9,160. The assessee appealed.

4. The Commissioner (Appeals) sustained the disallowance. He was unable to accept the position laid down by the Delhi Bench of the Tribunal as correct. According to him, 'Section 37(3) had as its aim the restriction of unduly large amounts spent on daily allowance on unnecessary bookings on planes and trains, etc. Therefore, the daily allowance which starts immediately on the employees commencing his outside journey and ends on his returning back to headquarters would be covered by section 37(3) read with rule 6D of the Income-tax Rules'. The assessee is, hence, in further appeal.

5. Shri Ananthachari, the learned counsel for the assessee, placed before us at the outset, a statement showing the day-to-day details of the expenditure incurred. We find from the statement that during the year the expenditure in question was on account of four persons. The details of the said expenditure and the disallowances relating thereto may be summarised as under :

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Name of the person Total expenses Excess Remarks

incurred disallowed

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Rs. Rs.

T. S. Santhanam 1,800 900 Total period 6 days.

(Chairman) Daily allowance at

Rs. 150 per day as

travel was to Bombay.

T. N. Padmanabhan Total period 54 days.

(Managing Director) Drew daily allowance

13,100 6,450 of Rs. 150 per day as

regards stay at New

Delhi and Bombay. For

the other places visited,

e. g., Bangalore,

Hyderabad, Madurai,

etc., daily allowance

drawn was Rs. 100 per

day.

G. K. Raman Total period 28 days.

(General Manager) 5,761 1,561 Daily allowance drawn

on the same basis as

above. (He visited only

Bombay and Delhi.)

S. Raghavan Total period 2 days.

(Secretary and Chief Daily allowance drawn

Accountant) 549 249 as above. (Visited only

Bombay.)

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6. The counsel emphasised that the expenditure disallowed was not because it was not admissible as business expenditure. It was considered a legitimate business expenditure and would have been allowed under section 37(1) but for the alleged embargo enacted in section 37(3). The counsel contends, there is in law no such restriction in section 37(3) as has been applied here by the authorities below and, according to him, the restriction has been applied only because the authorities missed the true import of the section. The counsel read with us section 37(3) and rule 6D. Section 37(3) is reproduced below :

"(3) Notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1964, on advertisement or on maintenance of any residential accommodation including any accommodation in the nature of a guest-house or in connection with travelling by an employee or any other person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed."

Rule 6D is in two parts. Sub-rule (1) thereof deals with expenditure incurred by an assessee in connection with travelling by an employee or any other person outside India. We are not concerned with this here. Sub-rule (2), on the other hand, deals with such expenditure incurred within India. This is reproduced below :

"(2) The allowance in respect of expenditure incurred by an assessee in connection with travelling by an employee or any other person within India outside the headquarters of such employee or other person for the purposes of the business or profession of the assessee shall not exceed the aggregate of the amounts computed as hereunder :

(a) in respect of travel by rail, road, waterway or air, the expenditure actually incurred ;

(b) in respect of any other expenditure (including hotel expenses or allowances paid) in connection with such travel, an amount calculated at the following rates for the period spent outside such headquarters :

(i) in respect of an employee whose Rs. 150 per day or part thereof ;

salary is Rs, 1,000 per month

or more

(ii) in respect of any other employee Rs. 75 per day or part thereof ;

(iii) in respect of any other person an amount calculated at the rates

applicable in the case of the highest paid

employee of the assessee :

Provided that if the stay of such employee or other person outside his headquarters is at Bombay, Calcutta or Delhi, the amount computed at the aforesaid rates shall be increased by a sum equal to thirty-three and one-third per cent of such amount :

Provided further that in a case where such employee or other person on any day of his stay outside his headquarters, stays free of charge in a guest house maintained by the assessee, the amount under this clause shall be calculated at one-third of the aforesaid rates and where the employee or such other person is provided lodging only free of charge, at one-half of the aforesaid rates."

7. According to Shri Ananthachari, the expression 'expenditure incurred by an assessee in connection with travelling' does not mean what it has been taken to mean by the authorities below. According to him, the crucial word which governs the meaning of the entire provisions including the rule is 'travelling'. The word occurs in the relevant section as well as the rule by way of the phrase 'in connection with travelling'. The counsel referred to the meaning of the word 'travel' found in the dictionary. In the Concise Oxford Dictionary, 5th edition, page 1382, the following is given :

"Travel. (1) Make a journey esp. one of some length to distant countries ; pass esp. in deliberate on systematic manner from point to point ; move or proceed in specified manner or at specified rate."

The submission is that travelling denotes movement of an individual from Point A to Point D. Expenditure in connection with travel would, therefore, mean all the expenditure that is incurred in the process of an individual's progress from Point A, say Madras, to Point B, say Delhi. Once the individual reaches Delhi, travelling ceases. Any expenditure that comes to be incurred by the individual after reaching Delhi, whatever may be the nature of the expenditure, cannot be described as expenditure in connection with travelling. To do so would be to ignore the well settled and commonly understood meaning of the word 'travel'. The counsel submits that this interpretation is based not merely on lexical authority. Judicial interpretation also runs on the same lines. Reference is made in this connection to the decision of the Madras High Court in CIT v. K. T. M. S. Mohamed [1981] 128 ITR 580. In that case, the meaning of the word 'migrated' in a circular of the CBDT came in for interpretation. One of the questions referred to the Court for opinion was :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was a person who is to be considered as having migrated to India from Ceylon after the stipulated date, i. e., November 1, 1964, for the purpose of application of the Board's Circular F. No. 222/7/1970-ITA. II dated August 5, 1971."

The counsel for the revenue contended there that the word 'migrated' used in the Board's circular connoted that the assessee must be a citizen or resident of Ceylon and not an Indian citizen frequently going between India and Ceylon and staying in Ceylon for short periods and the assessee who was assessed in India and visiting Ceylon frequently and staying there for short periods cannot be considered to be a 'migrant' from Ceylon and, thus, avail of the benefit of the Board's circular. The Court observed that the tenor of the Board's circular suggested that it had to be applied in a systematic manner ; hence, it was obvious that the circular had to be interpreted in a broad and liberal manner and not in a narrower sense to deprive any benefit that may be intended to be conferred under the said circular ; that in such a background the word 'migrated' used in the circular must be understood as meaning physical movement from Ceylon to India accompanied by some sort of intention ; so long as the movement from Ceylon to India was voluntary and not for a short or limited period or for any specific purpose, the assessee could be said to have migrated from Ceylon to India.

8. The counsel stresses the above decision to contend before us that travel also connotes (as in the term 'migrated') merely movement from point to point and nothing more. After all (it is contended) a taxing statute has to be construed strictly. There is no intendment and nothing is implied in a taxing statute. If the words of the statute fail to reach the subject, so must the tax. The further submission is : even assuming a different interpretation---adverse to the taxpayer---is possible, the construction favourable to the taxpayer must be preferred. Attention is drawn to the decision of the Supreme Court in CIT v. Naga Hills Tea Co. Ltd. [1973] 89 ITR 236, where it was held that if a provision of a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee has to be accepted. Thus, according to the learned counsel, the expenses incurred by the four persons above, after they reached their places of destination including the stay expenses there, could not be considered for disallowance in terms of the section and the rule. Section 37(3) as well as the rule, no doubt, specify disallowance of hotel expenses incurred in connection with such travelling. Firstly, the phrase 'including hotel expenses or allowances paid' qualifies the phrase 'paid in connection with such travelling' in section 37(3). That is to say, in the parent provision itself the concept of travel is limited to the movement, i. e., travel from Point A to Point B. The same expressions occur in rule 6D(2) also. Firstly, the rule-making authority cannot overstep the limits laid down by the parent provision itself. If it does, the rule so enacted has to be ignored as non est in law. Secondly, as in the case of section 37(3),the phrase 'in connection with travelling' occurring in the rule also must be understood as simply denoting travelling from Point A to Point B. But then, the phrase 'including hotel expenses' has to be given some meaning as nothing is to be considered otiose. The counsel goes on to explain that the expression 'including hotel expenses' found in the section as well as in the rule merely connotes the expenses that may be incurred by an employee or other person while in transit. That is to say, where such a person leaves his headquarters, i. e., Point A, to another place on business, i. e., Point B, it may become necessary for him to break his journey in between, e. g., to get a connecting flight or train. The hotel expenses or any other expenditure that may be incurred while in this stage of transit would be covered by the restrictions imposed by the section and the rule ; but not such expenditure incurred after reaching Point B. Lastly, reliance is also placed on the order of the Delhi Bench of the Tribunal dated 22-5-1981 in Bharat Commerce & Industries' case. The submission is that, in any case, the statement of law recorded in this order of the Tribunal should be followed here also. Attention is invited to the relevant portion of that order, reproduced below :

"We accept the assessee's contention that the time spent by an employee or other person concerned, outside the headquarters on travel or in connection with travelling is not to be taken to be identical with the entire period on which such employee or other person remains on tour. However, we do not accept as correct the assessee's submission that the provisions of section 37(3) or of the connected rule are applicable so far as non-fare or journey expenses are concerned only for the periods spent up to the point of time of reaching the appointed destination or destinations on the one hand and for the time spent from the time of leaving such destination (outside the headquarters) to the point of reaching either the next destination outside the headquarters or reaching the headquarters itself. In our view, only the days on which such employee or other person conducts the business of the employer outside his headquarters would fall outside the ambit of section 37(3). In other words, the expenditure incurred in connection with travelling of employee, etc., would, so far as non-journey expenses are concerned cover only the time spent in hotel/guest houses, rest houses, etc., i. e., the period prior to commencement of and subsequent to the days on which actual business of the employer is conducted outside the headquarters as aforesaid. In this connection, we would also briefly refer to the aspect that a distinction between travelling allowance and daily allowance is maintained in respect of civil servants, who move out from headquarters on tour, even though under the TA and DA rules, daily allowance is also permissible in respect of the time spent on journeys as well, whether such time is spent actually in transport/vehicle itself or off days when no official business as such is conducted. The said aspect is being mentioned only from the limited viewpoint that travelling allowance and daily allowance are not identical. According to us, the daily allowance admissible to a civil servant on days (including holidays), when such servant is on active actual duty at the stations of tour, would be akin to the periods spent by an assessee's employee, etc., not connected with travelling within the meaning of section 37(3).

8. The learned departmental representative specifically mentioned the second proviso to rule 6D(2), as reproduced above, for the reasoning that entire period spent by an employee, etc., of an assessee outside his headquarters, should be taken to be the entire period spent on travel. We do not agree that the said proviso gives any inkling as to the meaning and scope of travelling mentioned in section 37(3). The said proviso, according to us, only regulates the rates of allowance admissible in connection with travelling in certain situations, namely, where the employee, etc., stays free of charge in a guest house maintained by the assessee.

9. In the view that we have taken, we consider it necessary to remand the matter to the ITO for fresh decision according to law as to the admissibility of expenditure in question after taking into account the periods spent by the employee, etc., outside his headquarters actually in connection with conducting the business of the assessee as elucidated hereinabove. The deductibility of last said expenditure would have to be determined with reference to the provisions of section 37(1) without considering the inhibition contained in section 37(3), we hold accordingly."

9. Shri O. P. Vaish, the learned counsel, supported and supplemented (as intervener) the contentions of Shri Ananthachari. According to Shri Vaish, the word 'travel' connotes something quite distinct from what the word 'tour' does. A tour indicates a journey through a country from place to place. It indicates a spell of duty on service or time to be spent at a station. On the other hand, travel is a much more rigid concept. It has only to do with the movement of a person from one place to another and nothing more. He referred to the judicial interpretation of the word 'travel' as given in the following extract from Butterworth's Words and Phrases Legally Defined, volume 5, p. 217, 2nd edition :

"So long as the person is in the process of arriving, . . . having come by a railway conveyance, at the exit or terminus from the arrival platform, he is in my judgment still travelling ; and applying that to the facts of the present case, it must be equally clear as a matter of logic that a companion, on whose behalf he tenders a sum of money, is still in the process of travelling when that companion, has not himself or herself arrived at the point of having left the arrival platform."---Murphy v. Verati [1967] 1 All ER 861, per Winn, L. J. at p. 863.

10. Shri Vaish further pointed out from the above publication, ibid., that an Australian Court had occasion to interpret section 9A of the Commonwealth Employees' Compensation Act, 1930-1962. This section provided that where personal injury by accident is caused to an employee while be is 'travelling' to or from his employment by the Commonwealth, the Commonwealth shall be liable to pay compensation as if the accident were an accident arising out of or in the course of his employment. Reliance was placed on this to argue that 'travelling' simply meant from proceeding on the business of the employer from one place, i. e., headquarters to the place at which the employee so travelling has to conduct the business of the employer.

11. Similarly, the counsel referred to the same publication (vol. 3, p. 21, 2nd edition) to illustrate the meaning of the phrase 'in connection with' occurring in conjunction with the word 'travelling' both in section 37(3) as well as rule 6D. The extract relied upon for this purpose is with regard to the interpretation of section 10 of the Government Railway Act, 1908 (New Zealand). It empowered the Minister of Railways to fix scales of charges to be paid for goods carried on a railway or stored in any shed, store, etc. 'in connection with a railway'. The following extract was relied on to point out that in the Court's view :

" 'in connection with a railway' means connected with subserving and being ancillary to, the business of a railway as such carriers . . . These words .... must be directed to something different from propinquity or contiguity, and in their Lordships' view, having regard to all the provisions of the statute, mean in section 10 in connection with the business and operations of a railway as a carrier of goods by rail."---Hatrick (A.) & Co. v. R. [1923] AC 213, PC per cur., at pp. 225-227.

The counsel then referred to Stroud's Judicial Dictionary, vol. 5, p. 2821 to emphasize that under the Regulation of Railway Act, 1889 (UK), the word 'travelling' occurring in section 5 of that Act was so interpreted as to hold that a person is still 'travelling' after he has alighted from his train and before he passes his ticket barrier---(1964) 1 WLR 119. This was in support of the argument that travel continues up to the point of the termination of the journey from the headquarters. Any expenditure incurred thereafter by the employee while staying at the place of destination will not be an expenditure, incurred in connection with travelling. Shri Vaish also relied, alternatively, on the order of the Delhi Bench of the Tribunal in Bharat Commerce & Industries' case and contended that the authorities below have not interpreted the section and the rule correctly.

12. Shri C. S. Padmanabhan, appearing for the revenue, supported the orders of the authorities below. He also referred to the dictionary meaning of the word 'travel' in the first instance, i. e., 'make a journey esp. one of some length to distant countries', etc. The departmental representative submits that the making of a journey is a complete and integrated whole. It is indivisible. It not only comprises movement from the headquarters to the place of destination but also the stay at the place of destination as well as the return from that place to the headquarters. There is no warrant for overrefining the concept of 'travel' (or the plain meaning of the statute) into what is, plainly, not in consonance with the common understanding of the word. According to the departmental representative, the section as well as the rule have made it doubly clear by the use of the phrase 'in connection with'. This phrase brought into the ambit of the Act, the expenditure incurred by an employee from the moment he started his 'travelling' till the moment he finished it back at his headquarters. It would indeed be incongruous, according to the departmental representative, to cut off the exercise of travelling the moment the employee or other person reached the place of destination ; and then revive it from the moment he started his journey back to the headquarters. The Act does not warrant any such sophistry. The words used are plain and there is no room for giving the phrase 'in connection with travelling' a wholly new meaning that is not in accordance with the common or accepted usage or understanding of the phrase.

13. On the question of interpretation, Shri Padmanabban cited several authorities. The sum and substance of his submissions in this regard are :

1. A construction which defeats the very object sought to be achieved by the Legislature must, if possible, be avoided.

CIT v. S. Teja Singh [1959] 35 ITR 408 (SC).

2. It is true that a taxing provision must receive a strict construction at the hands of the Courts and if there is any ambiguity, the benefit of that ambiguity must go to the assessee. But that is not the same thing as saying that a taxing provision should not receive a reasonable construction. If the intention of the Legislature is clear and beyond doubt, then the fact that the provision could have been more artistically drafted cannot be a ground to treat any part of a provision as otiose.

CWT v. Kripashankar Dayashanker Worah [1971] 81 ITR 763 (SC).

3. It is true that a fiscal statute should be construed strictly so as to give every benefit of doubt to the subject. But when the phraseology of a particular section of the statute takes within its sweep the transaction which is taxable, it is not for the Court to strain and stress the language of the section so as to enable the taxpayers to escape the tax.

CED v. Alladi Kuppuswamy [1977] 108 ITR 439 (SC).

4. Words in a section of a statute are not to be interpreted by having those words on one hand and the dictionary in the other. In spelling out the meaning of the words in a section, one must take into consideration the setting in which those terms are used and the purpose that they are intended to serve.

CGT v. N. S. Getti Chettiar [1971] 82 ITR 599 (SC).

14. Shri Padmanabhan points out that, in the instant case, both the opposing parties in this appeal have claimed that what should be applied is the literal rule but that the agreement stops there. According to the departmental representative, on a literal construction, the revenue must succeed. On the other hand, both the counsels appearing on the other side also have contended with equal vehemence that on a literal construction the orders of the authorities below cannot stand. The departmental representative adds that there is also the order of the Delhi Bench of the Tribunal which has recorded a view that the Commissioner (Appeals) found himself unable to follow. From all this, whatever is certain or not certain, it could be argued (according to the departmental representative) that there is some ambiguity in the provision. Assuming then this ambiguity, the departmental representative submits that a necessary step to understand the true meaning of the provision would be to invoke some external aid to the construction of the phrase in question. He points out that this is permissible and has been held to be so by the Supreme Court itself in K. P. Varghese v. ITO [1981] 131 ITR 597, 608, 609 (SC). [That case involved the interpretation of section 52(2) of the Act.] He referred to paragraph 10 of the Commissioner (Appeals) order which has extracted the Finance Minister's Budget speech (1964-65), introducing the Finance Bill, 1964. Paragraph 57 of the speech was as follows :

"57. I find that the provisions of the Income-tax Act allowing as deductible expenditure amounts spent wholly and exclusively for the purpose of business are being abused in respect of certain types of expenditure. Unduly large amounts are spent on daily allowance, on unnecessary bookings on planes and trains, on advertisement and on the maintenance of guest houses and suites of rooms in hotels outside the specific places of business, on providing conveyances and in paying high rents for accommodation for their officers and directors and in many other ways. I am afraid this tendency amongst companies is responsible in no small measure for the present high costs and the time has come to put a check at least on some of these expenses. It is not practicable to spell out all the restrictions in detail in the Act itself as some room will always be left for those inclined to evade these provisions to find ways of doing so. I feel it is necessary to have the power to make rules in this behalf where a specific provision is not practicable. A provision has been included in the Finance Bill for this purpose. Subject to these changes I propose to continue the existing corporate tax structure, including the rebate on incomes earned from exports."

Shri Padmanabhan submits that it was in furtherance of the above object that the Legislature enacted the relevant provisions and it will not be for the Courts to frustrate this legislative intent unless in making the legislated text serve its intended purpose, violence to the statutory language becomes necessary. According to the departmental representative, that is not the case at all here. The statutory language is wholly in line with the declared object of the Legislature and, hence, the Commissioner (Appeals)'s interpretation should be upheld as correct.

15. In reply both the counsel on the opposite sides stressed the point that assuming it was necessary to invoke external aids to construction, such as the Finance Minister's Budget speech, the revenue's case did not go any further. This was because the Legislature has quite obviously failed to translate its alleged intent effectively into statutory language. The words enacted do not convey the meaning sought to be placed on them for the revenue. The further submission was : it is one thing for the Court to discard a literal interpretation and apply the mischief rule where it finds it necessary to do so : but it is quite a different thing if the Court (in doing so) has to rewrite the statutory language. To do so would be not to interpret the statute but to indulge in judicial paraphrasing ; and this is not permissible.

16. So much for the submissions before us. We have already extracted briefly, supra, the details of the quantum of the expenditure involved including the number of days of stay outside the headquarters and the places visited. It is at once obvious that the expenditure claimed in relation to the places visited and the number of days of stay thereat, is most reasonable. It is also clear that the section and the rule have been put on the statute book to catch those taxpayers who (to quote the Finance Minister from his Budget speech 1964-65, supra) abuse the deduction provisions under the Act by claiming unduly large expenditure on daily allowance, on unnecessary bookings on planes and trains, on the maintenance of guest houses and suites of rooms, hotels outside the specific place of business, on providing conveyances and in paying high rents for accommodation for their officers and directors and in many other ways. From that point of view, it could be safely said that the expenditure that has been incurred by the assessee here could not have been the object of attack by legislative amendment. But then, in the interpretation of a taxing statute, equitable considerations alone do not loom large. The doctrines of beneficial construction and equitable construction have now become obsolete. The Courts will decline to interfere for the assistance of persons who seek its aid to relieve them against express statutory provisions simply on equitable grounds as modern Acts are framed in the light of equitable as well as legal principles. Modern methods of judicial approach to interpretation of statutes are by and large concerned with the literal rule or (in cases of ambiguity) the mischief rule or (where the grammatical and ordinary sense of the words in the statute leads to some obscurity or inconsistency with the rest of the statute) the 'golden rule'. It has been argued before us that the language of the section and the rule being clear, a literal or strict construction is called for. The argument for the assessee in essence has been : 'in connection with travelling' simply means the expenditure incurred while travelling. The meaning being so clear from the words used in the statute, there is no need for any external aids. We do not thing the position is as simple as this.

17. A statute generally lays down a principle for application to case situations yet to materialise. The Legislature has, therefore, to speculate on how future situations will come up and what ramifications will ensue therefrom. It is because of this difficulty, the Legislatures are often content with laying down the most general statements of law leaving it to the judicial interpretative process to apply creatively the general principle to particular cases. It is in effect, a deliberate delegation of responsibility to the Courts by the Legislature. Thus, it is for the Courts to remove the ambiguities and doubts thrown up by the language of the statute and lay down what the statute means. In this process, the Court merely seeks to discover the legislative intent and act upon it. It is the letter of the law that makes manifest such intent and the Court, therefore, relies primarily on the letter of the law in the process of interpretation. It is to be noted here that rules or canons of construction are different in scope from rules of law. A rule of construction is not inflexible. It is merely a presumption in favour of a particular meaning in case of ambiguity. As Bowen, L. J., puts it :

"These canons do not override the language of a statute where the language is clear ; they are only guides to enable us to understand what is inferential. In each case, the Act of Parliament is all powerful, and when its meaning is unequivocally expressed, the necessity for rules of construction disappears and reaches the vanishing point."---London & Northwest Railway v. Evans [1893] 1 Ch. 186, 27.

18. It is well settled that a taxing statute has to be construed literally. The locus classicus of Rowlatt J. is perhaps the most quoted in this context. In Cape Brandy Syndicate v. IRC [1921] 1 KB 64, 71 be said :

"In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

This rule has, however, often given rise to some unease. Is it enough to say that one has to look at what is clearly said, when nothing appears to be clearly said ? Can one say in such a case that there is no room for any intendment ? Rowlatt, J.'s observations perhaps oversimplify the problem which the Courts often face. It has been contended for both the parties before us that the section as well as the rule were in plain terms and that there was no ambiguity. But then what they understood from the section and the rule was not the same. Here we may consider the decision of the Delhi Bench of the Tribunal in Bharat Commerce & Industries' case to understand what meaning it gave to the relevant provisions. We have looked at the reasoning therein with respect and care. We are, however, unable to accept the interpretation recorded therein because of a major difficulty. The meaning of the phrase 'in connection with travelling', we find, has not been examined exhaustively and the different shades of the dispute before us were not presented before the Bench in that case for adjudication. We, therefore, find it necessary to examine the issue afresh in the light of the detailed arguments taken before us. We may at once state here that decisions rendered under other statutes, e. g., under the Regulation of Railway Act, 1889 (UK) or the Commonwealth Employees, Compensation Act, 1930-1962 (Australia) or the Government Railway Act, 1908 (New Zealand) will have only a very limited relevance. This is because the discussion therein cannot be divorced from the context of the facts and the statute concerned. For example, the meaning of the word 'travelling' has been argued to be merely a movement or a journey from the headquarters to the place of destination. Under the Regulation of Railway Act, the conceptual parameters for such 'travelling' will be necessarily different from those involving the same phrase under a taxing Act like the Income-tax Act, 1961. A relevant comment in Craies on Statute Law (7th edition, p. 133) is :

"In the interpretation of statutes, Courts decline to consider other statutes proceeding on different lines and including different provisions, or the judicial decisions thereon."

Lord Machaghten, while discussing the phraseology of the two revenue Acts had observed in Inland Revenue Commissioners v. Forrest [1890] 15 AC 334, 353 :

"The two Acts differ widely in their scope and even when they happen to deal with the same subject their wording is not the same. It was argued, indeed, that the language was 'practically identical', but that expression to my mind, involves an admission that the language is different."

Hence, we can only proceed with caution in the matter of following decisions of foreign Courts given in interpreting statutes quite different in their scope.

19. In the light of the arguments placed before us, we do find that there is an ambiguity in the language of the section and the rule. The phrase 'in connection with travelling' has to be given the meaning which the Legislature intended that it should have, while ensuring no violence is done to the statutory language in the process. No doubt, it has been held that the words of a statute themselves do best declare the intention of the law given. Farwell, L. J., stated the position in this regard thus :

"The mischief sought to be cured by an Act of Parliament must be sought within the Act itself. Although it may perhaps be legitimate to call history in aid to show what facts existed to bring about a statute, the inferences drawn therefrom are exceedingly slight."---R. v. West Riding County Council [1960] 2 KB 676, 716

But the above position is not inflexible. The Supreme Court in K. P. Varghese's case observed :

"Now, it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation was enacted. This is in accord with the recent trend in juristic thought not only in Western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible. In fact there are at least three decisions of this Court, one in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234, the other in Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 and the third in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1, where the speech made by the Finance Minister while introducing the exclusionary clause in section 2, clause (15), of the Act was relied upon by the Court for the purpose of ascertaining what was the reason for introducing that clause . . . ."

20. There is obviously a need in this case to look at the reasons for which section 37(3) was put on the statute book and rule 6D was enacted pursuant thereto. Section 37(3) was inserted by section 9 of the Finance Act, 1964, effective from 1-4-1964. Rule 6D was enacted thereunder. Prior to this provision, as the Finance Minister's Budget speech of 1964-65 has pointed out vide paragraph 14 above, there was no specific provision to curtail or reject claims for deduction of unduly large expenditure on daily allowance on unnecessary bookings on planes and trains 'and in many other ways'. To prevent this mischief that was not only resulting in loss of the revenue but also was contributing for the 'present high costs' a remedy was enacted by the Legislature.

21. Both the section and the rule refer to the expenditure incurred by an assessee in connection with 'travelling'. As will be noticed from the extracts of the section and the rule in paragraph 6 above, the words 'including hotel expenses or allowances paid in connection with such travelling' appear in brackets. No doubt, the counsel for the assessee contended, hotel expenses here meant only such expenses incurred, while in transit, i. e., midway in the movement from Point A to Point B and not the hotel expenses incurred after reaching Point B, i. e., the place of destination. We do not think this to be the correct reading of the language of the statute. We have already extracted the dictionary meanings of the word 'travel'. Hotel expenses incurred at the place of destination also, in our view, would be expenses incurred in connection with 'travelling' within the meaning of section 37(3) and rule 6D. (We may mention here that in the instant case the disputed disallowance concerns only boarding and lodging expenses, i. e., 'hotel expenses', and not expenses on telephone calls, taxi fare and the like at the places of destination.) Subject to the limitations we have already pointed out as regards interpretation of foreign Acts, we would extract below a relevant portion from the comment in Stroud's Judicial Dictionary, 4th edition, volume V :

"(6) 'Travelling Expenses', in the ordinary acceptance, 'include the whole cost and inconvenience to which a person is put by being absent from home' (per Lord M'Laren, Ivory v. Macrae, 33 SC LR 105) ; held, in that case, that 'travelling expenses of presiding officers and clerks, per mile, 1s., 'Sched., Pt. I, Returning Officers (Scotland) Act, 1891 (54 and 55 Vict., c. 49), included, and those officials were entitled to, their cost of subsistence in an hotel or lodgings as well as their railway fare or other expenses of locomotion, so long as the limit of 1s. per mile was not exceeded. See now Returning Officers' Expenses (Scotland) Regulations, 1949 (Sl. No. 1966), Table B, Art. 8."

22. What is of interest here is to note that the phrase 'travelling expenses' has been explained in its ordinary acceptance. The phrase includes the whole cost and inconvenience to which a person is put by being absent from home. The basic concept is not movement but the whole cost and inconvenience of the person absent from home. Looked at from this light, there is a strong case for the revenue's contention that hotel expenses also have to be considered in a case like the one before us while applying rule 6D. In our view, this contention of the revenue has substance. This view, in fact, is supported by the legislative history as well. There was a defect in the Act previously. Huge expenditure by way of travel costs including hotel bookings incurred as business expenditure and claimed as such could not be the subject of a disallowance under any specific provision of the taxing Act. There was considerable scope for avoidance of proper tax liabilities through this loophole. The result was not merely loss of revenue but also contributed to 'high costs', to quote the Finance Minister. The Legislature, therefore, stepped in and amended the statute to give effect to its intention of remedying the mischief noticed by it. As held by the Supreme Court in Sevantilal Maneklal Sheth v. CIT [1968] 68 ITR 503, while interpreting an anti-avoidance provision like section 16(3)(a)(iii) of the Indian Income-tax Act, 1922, it is a sound rule of interpretation that a statute should be so construed as to prevent the mischief and to advance the remedy according to the true intention of the makers of the statute. We would, therefore, confirm the Commissioner (Appeals)'s reading of the section as well as the rule as correct.

23. We must note here the stand taken by the counsel for the assessee as well as the counsel who appeared as intervener on the applicability of the mischief rule. They argued that firstly, on a literal reading the assessee must succeed ; that alternatively, even assuming ambiguity in the statute calling for application of the mischief rule, the Legislature had failed to translate its intent effectively and that the words of the section as well as the rule having failed to reach the subject, the tax sought to be levied on the basis of such section and rule must also fail. In support of this argument, the actual expenditure incurred by the employees and the other persons of the assessee-company on travelling and claimed as deduction is referred to. The expenditure is reasonable and the section and the rule have been introduced only to catch taxpayers trying to get away with huge claims of expenditure on travelling including boarding and lodging in connection therewith. The section and the rule could not have been meant for claims such as the assessee has made here ; and, therefore, it must be held that the putative intention of the Legislature has failed to be enacted into adequate statutory language.

24. It is true that it was not in serious dispute before us---it could not have been---that the expenditure claimed by the assessee can be termed as most reasonable looking to the places of destination and the number of days spent there by the employees and the directors. But from this alone we are unable to accept the claim that the legislative amendment has misfired. In fact, an exactly opposite situation seems to have been brought about. Not infrequently, when the Government finds its fundamental fiscal policy being impaired by avoidance (or evasion) with the consequent immunity conferred on social imbalances and tensions, the taxing statute is amended. But often the amendment is in terms of such severity (out of abundant caution) that it catches even the innocent or the reasonable taxpayer. In other words, in seeking to block a loophole, the Legislature often enacts the anti-avoidance provision in such wide language that a tax trap results, which catches Unintentionally even persons other than those meant to be caught by the provision. In our view, this is what has happened here. To hold that the innocent or reasonable taxpayer must be exempted from such a provision is not given to the Courts as they cannot 'stress and strain the language of the section so as to enable the taxpayer to escape tax'. The remedy can only lie by way of administrative interference. The section and the rule lay down the limits of expenditure beyond which deduction would be impermissible. As we have already recorded, equitable considerations would not be relevant in interpreting the provisions of a taxing statute. This is well settled and we would merely point out that this was the position stated by the Supreme Court in CIT v. Central India Industries Ltd. [1971] 82 ITR 555.

25. The result is, we do not find it possible to interfere with the order of the Commissioner (Appeals).

26. The appeal is dismissed.

Per Shri Ch. G. Krishnamurthy, Vice President and Shri C. Kochunni Nair, Judicial Member --- We have carefully gone through the order proposed by our learned brother, Dr. S. Narayanan. While we are in entire agreement with the views expressed by him on the aspect of disallowability of the expenses and on the interpretative process of fiscal statutes, more particularly those relating to relying on external aids like the Finance Minister's speech, etc., in Parliament, we would like to arrive at the answer to the problem set before us by dealing with that portion of the argument addressed to us in the course of the hearing as to whether the expression 'including hotel expenses' is to be limited only to the daily allowances as stipulated in rule 6D or should it cover expenses incurred after stay in the hotel other than the daily allowances, like telephone bills, secretarial assistance, etc., etc. The argument of Shri Vaish before us proceeded on the lines that if the expression 'hotel expenses' is to include all and every expense incurred, for subjecting to the limitation provided in rule 6D, it would do grave injustice and result in grave unintended hardships. It is quite possible for an executive of a business house or a director to go to another place, stay in a hotel for the purpose of transacting business. A person going, say from Madras to Delhi, will have to stay in a hotel not for the mere purpose of staying in hotel but to transact business on behalf of the company and in that process, he may have to, say for example, engage taxis to meet the concerned persons, report back to the office the developments and to take instructions and if these expenses, to cite only one instance, are held to be subject to limitation provided in rule 6D, then it will cripple business, far from achieving the object which the Hon'ble Finance Minister had in his mind, when the curb on such expenditure was proposed, it would seriously impede the attainment of objectives and progress of business. Those expenses are incurred purely for the purpose of business and fall outside the scope of not only rule 6D but even the Finance Minister's speech made in the Parliament. The whole object of introducing a restriction on the allowance of travelling expenditure was to curb lavish expenditure being incurred on travelling so as to prevent it from resulting in high cost. An expenditure of the type mentioned above could neither be said to be lavish nor unnecessary nor result in high cost. That should, therefore, be excluded.

2. We feel that this is a very relevant bona fide and justifiable contention which needs to be accepted. We are of the view that having regard to the circumstances obtaining before the introduction of this particular provision in the statute and the provisions of rule 6D, what is sought to be subjected to restrictions is only the daily allowances given for stay in the hotel and that restriction does not impinge upon any other expenditure, though incurred through the medium of hotel. That the expenditure sought to be disallowed by applying rule 6D and section 37(3) is limited to the daily allowances is borne out by the internal evidence, provided by the very language used in section 37(3) itself. When it uses the expression 'including hotel expenses or allowances paid in connection with travelling', it must mean only the allowances paid for the stay in hotel. The restriction, thus, confines itself only to the expenses on stay and does not cover other expenses incurred provided they are not personal and are exclusively for the purpose of business. Since the illustrations of the nature given by Shri Vaish can be multiplied, we do not wish to embark upon any speculation of the category of such expenses, but we would only say that rule 6D read with section 37(3) seeks to limit the expenditure incurred on travelling to the extent of stay in hotels confining it to daily allowances referred to in rule 6D and do not extend to any other expenditure incurred provided that expenditure was for the purpose of business.

3. Applying this test to the facts of the case before us, we are of the view that the expenditure incurred by the assessee before us, though reasonable, comes within the category of expenditure referred to in rule 6D and is, therefore, subject to the limitation provided therein. With these observations, we would agree with the view taken by our learned brother, expressed so lucidly.

 

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