INCOME TAX LAW. Volume L By K. Chaturvedi & S.M. Pithisaria.

Second ed. (1976). Eastern Law House, Calcutta. Pp. lii + 1016+96.
Rs. 90.

THIS IS the first of the contemplated four volumes of over one thousand
pages each that the commentators propose to bring out. They had publish-
ed the first edition in 1971 and as per the flap-cover, it was exhausted
within a span of only three months.
In this volume, the commentators have covered law up to January 1,
1976, induing the Taxation Laws (Amendment) Act, 1975, and the Finance
Act, 1975. The amendments made by the Finance Act, 1976 have been
printed in the supplement without any commentary which has since been
issued with volume II. Volume I has covered Income Tax Reports up to
and including volume 100. It is also claimed in the preface that some cases
reported in volume 101 of the Income Tax Reports, have also been given in
this volume. It may be noted that at the time of writing this review much
water had flowed down the income-tax river.
Though income tax law occupies a very important position in the
financial world, yet it is a pity that there are very few commentaries on
the income-tax law. The famous commentary by Palkhivala—The Law and
Practice of Income Tax—has for long held the place of honour. The only
other commentary which has been there for more than two decades is one by
Sampat Iyengar. Sampat Iyengar brought out the last sixth edition in
1972. It is doubtful now after his demise, a new edition of that book will
ever come out. Palkhivala has since brought out the seventh edition in 1976
which covers Finance Act, 1976 and up to volume 102 of the Income Tax
Reports. Thus, Chaturvedi and Pithisaria's Income Tax Lawfillsthe void
and is a welcome addition (albeit second rate).
Like Palkhivala, these authors also in the preface bemoan numerous
and frequent changes in the income tax law. Though the Income Tax
Act, 1961 had claimed to codify and consolidate the law while replacing
the Income Tax Act, 1922, the present Act has already suffered thirty-eight
amendments (as per the present authors). Palkhivala in his preface has
highlighted this situation by castigating administration "which mistakes
amendment for improvement and change for progress."1 Palkhivala
observed:
However acute the recession, there is one activity which thrives and
is in a state of perpetual boom—the law-making industry. The
obsessional attitude that churning out new laws is the hall mark of

I. Kanga and Palkhivala, Law and Practice of Income Tax 10 (1976).

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1977] BOOK REVIEWS 517

good government is shared by the legislature and the rule-making

authority alike.2
It is this torrent of amendments and the constant inflow of rulings that
is the bane of and detracts from the value of all good commentaries.
Before the ink on the manuscript is dry, either the law has been amended
or the judicial pronouncements have given a different interpretation and a
twist and the commentator is left high and dry. Thus, the utility of the
commentary is very much reduced by the time it is in the hands of the
readers. More of it later. Palkhivala has, therefore, observed that *'The
Income-tax Act should provide the enduring structure for levy and collec-
tion"3 of income tax. In his inimitable manner, he has observed that
"provisions of Income-tax Act'nowadays are like a railway ticket—good only
for one journey in time from 1st April of one year to 31st March of the next,
and sometimes not even for the whole of that journey."4 Both the substantive
and procedural provisions, he observed, "seem to belong to a shadowland
where they have but a frail hold on existence. The kaleidoscopic amend-
ments are made without any concern for public hardship or public
inconvenience."5 Thus, both Palkhivala and Chaturvedi and Pithisaria
bemoan the plethora of amendments. It would also have become apparent
by now that Chaturvedi and Pithisaria is no patch on the elegance and
felicity of language when compared to Palkhivala.
Another interesting point touched by Chaturvedi and Pithisaria in the
introduction is regarding the efficacy of the Taxation Laws (Amendment)
Act, 1975. This Act was based on the Wanchoo Commission's report.
The said commission was appointed to assess the volume and extent of
black money, which according to some was almost a "parallel economy".
The commission suggested ways and means of curbing this evil of black
money. The Income Tax Laws (Amendment) Bill, 1973 was introduced in
the Lok Sabha on May 5, 1973. The Bill had 145 clauses and had proposed
vital and far-reaching changes in the income-tax law. The select committee
took more than two years to submit its report and the Bill was finally
enacted into the Taxation Laws (Amendment) Act, 1975, on August 7,
1975. The present commentators observed that while diagnosis of the
disease may have been correct, it was doubtful if the prescription would
produce the desired relief or efficacy. They noted that the cause of black
money was "the various controls, permits, quotas and other like hurdles
placed in the course of the natural flow of production and distribution of
essential goods and commodities."6 They further noticed Kaldor's recom-
mendations that the highest slab of tax rate should not exceed forty-five per

2. Ibid.
3. Mat 11.
4. Ibid.
5. Ibid.
£. Chaturvedi an£ pithisaria, Income Tax Law vi (1976).

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518 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 19 : 4

cent. The present commentators deprecated the high rate of taxation of

seventy-seven per cent and more for individuals, etc J It may be noted that
the highest slab for individuals has since been reduced by the Finance Act,
1976 to sixty per cent plus ten per cent surcharge. Thus, there has been
a downward trend, but we have, of course, a long way to go to meet with
Kaldor's approval.
The present commentators also drew attention to the "Summary Assess-
ment Scheme" and noted that 17.50 lakh assessees (out of the total of 21
lakh tax-prayers) pay only to ten per cent of the total tax yield and while the
government's intention was that their income-tax returns should be sum-
marily accepted, this was not being followed in practice. They wondered
whether it was due to administrative looseness—"and God knows what."
"The unexpected success of Voluntary Disclosure Scheme of 1975," accor-
ding to the commentators, highlighted that while the countrymen were
prepared to pay their taxes, they feared "the harassment and unnecessary
penal proceedings at the alter of the ordinary law."8 The commentators
opine that simplication of the law, no-harassment assessments and just rate
of tax might put the nation on its right and conscientious pedestal. They
noted that there still are very large number of people who ought to but do
not pay income-tax. This is particularly due to their own motives,
partly to the fear of harassment and partly due to "arranged connivance."
The result is that those who pay feel that they also could have saved
themselves the money and the trouble. According to the authors what is
needed is an "effective survey of the assessees and a harder vigilance of the
surveyors."9
The authors further felt that the amended section 132 of the Income Tax
Act dealing with search and seizure and amended section 133A dealing
with survey give very wide powers to the authorities without any machinery
being set up for prevention of motivated misuse. This, according to them,
would inevitably result in undesirable chaos. This is a very important
aspect and is brought out by the Sibal case10, where the Punjab andHaryana
High Court came down heavily on the income-tax administration and
quashed the proceedings of search and seizure on the ground that the
power was exercised for a collateral purpose. Earlier, the Supreme Cpurt
in Income-Tax Officer v. Seth Brothers11 had observed that the power of
search and seizure must be exercised strictly in accordance with law and
only for the purpose for which the law authorizes it to be exercised. If the
action is maliciously taken or the power under this section is exercised for
collateral purpose, then it is liable to be struck down* However, any error
of judgment will not vitiate the exercise of the power. These judgments,

7. Ibid.
8. Ibid.
9. Ibid.
10. HL. Sibal v. Commissioner of Income-Tax, 101 I.T.R. 112 (1975).
11. 74 I.T.R. 836(1969).

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of course, have not been referred to in the volume under review by the
present commentators as this volume (vol. I) only deals with sections 1 to
59 of the Income Tax Act and the aforesaid judgments were in respect of
section 132 which deals with search and seizure.
The authors have covered sections 1 to 59 in volume I and the commen-
tary runs in 1016 pages. As against this, Palkhivala in his seventh edition
(1976) has covered the same sections in 583 pages. This would show that
Chaturvedi and Pithisaria have given almost double the material. Besides
covering each subject under more topics and sub-heads, it appears that the
case-law given is also more than that given by Palkhivala. Of course, the
method of giving the case-law in the body of the text and not giving in the
foot-note is not perhaps as impressive as that of Palkhivala, who gives the
case-law in foot-notes in a smaller type. Thus, Palkhivala has the advantage
of having continuity of narration which is sometimes broken in the case of
Chaturvedi and Pithisaria.
Let us now sample some of the topics. Trust for religious and charitable
purposes is allowed exemption from income-tax under section 11. Creation
of trust for claiming exemption in the Income Tax Act is very easy as no
formal deed of trust is necessary.12 Trust can be created by book entry13
and even a cash balance is not necessary.14 Even the subsequent conduct of
the founder inconsistent with the creation of the trust is not material.15
This is based on the Thanthi Trust case.16 The diversion of corpus/income
to the trust was a favourite device by the business houses for claiming
exemption in respect of income so generated by the diverted corpus. The
diverted corpus with accumulation of income was used for helping the
business enterprises having taxable income. The interest, etc., paid by the
taxable business enterprises to the trust was exempt and thus a parallel
capital base was built to help and finance the taxable business. The author/
founder of the trust and his family members enjoyed a large number of
benefits from the trust.
The law in respect of trusts has been amended from time to time to plug
these loopholes. Last such amendment came by the Taxation Laws
(Amendment) Act, 1975. The authors have done useful work by giving a
chart at pages 341-346, indicating the position (i) under the 1922 Act; (ii)
under the 1961 Act up to 1970-71 assessment year; (ih) from 1971-72 assess-
ment year up to 1975-76 assessment year; and finally (iv) as amended by the
Taxation Laws (Amendment) Act, 1975. Even otherwise, the commentary
on trusts running from pages 314 to 379 (66 pages) is quite exhaustive.
Because of the drastic amendments from time to time it was quite an up-
hill task to test the case-law on the anvil of the law, as it stands today, and to

12. Supra note 6 at 317.

13. Id. at 318.
14. Id. at 319.
15. Id. at 321.
16. ThanthiTrust v, I.T.O., 91 I.T.R. 261 (1973).

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520 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 19 : 4

indicate that a large part of the case-law is no longer good law. This unfortuna-
tely has not been done. For example, at page 355 under the head "Preference
to relations for effecting charitable disposition," Chaturvedi and Pithisaria
have noted that where dominant intention was not to benefit the public but
to benefit the members or relations of the settler's family, the trust income
does not enjoy exemption from tax. However, the authors in the beginning
of this para relied on In re Koettgan's Will Trust17 for laying down the
proposition that if the purpose under the trust was a public purpose, a
further direction as to selection of beneficiaries for the application of the
income of the trust would not invalidate the primary object of the trust
from being a public trust. It would have been better if the authors on this
point had noted the provisions of section 13(3) which have made obsolete
the said case-law. Section 13(3) has been paraphrased by the authors at
page 379 in half a page but its implications and impact have not been
discussed.
Though section 13 was introduced by the Finance Act, 1970, with effect
from April 1, 1971 and it has been amended by the Finance Act, 1972 with
effect from April 1, 1973, yet the authors even after four years have not
made any worthwhile contribution and the commentary is confined only to
six pages, which is mainly paraphrasing of the provisions of this section.
At present juncture, actually it is section 13 which is most important
because it has whittled down the exemption which as per case-law the
assessees had been enjoying for some decades.
To give an example to show that there are many dark nooks and corners
which need illumination, this reviewer may mention section 13(5) of the
Act which prescribes the different forms and modes of investing or deposit-
ing "funds after April 1, 1978, if the trust is to get exemption. Clause (a)
covers funds (i) representing original corpus of the trust or institution, or
(I'I) any contribution made to the trust or institution with a specific direction
that they shall form part of the corpus of the trust or institution. This
clause gives seven modes of investment of such funds. Clause (b) of the
same sub-section covers the (/) corpus of the trust or institution immediately
before June 1, 1973; and (ii) contributions made to it after June 1, 1973
with the direction to make it part of the corpus of the trust or institution as
(Hi) also the original corpus of trust or institution created on or after June 1,
1973. This clause allows investment except in equity shares of companies
This reviewer has not been able to visualize a case where clause (b) woulcj
not cover the corpus of all the existing trusts; thus he is also not cleai
whether clause (b) does not fully overshadow clause (a). Again clause (c
deals with "any other case." What is the ambit of clause (c) as also of th<
earlier clauses? This could have been explained by the commentators. At
already indicated, section 13 has placed so many restraints on trusts claiming
exemption that, unless commentators make their contribution, the practising

17. (1954) Ch. 252.

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1977] BOOK REVIEWS 521

lawyers and chartered accountants would have to grope in the dark.

System of grouping the text of sections at one place, for example,
sections 11 to 13 at pages 301-311 is likely to create confusion rather than
being helpful. It is quite irksome to a reader reading the commentary
under section 13 and not being able to find the text of section 13 at the
beginning of such commentary. Similarly, text of sections 15 to 17 dealing
with salary have been clubbed at pages 385-388. However, sections 18-22
dealing with interest on securities have not been similarly clubbed and they
are given separately at pages 431, 435 and 437. Again sections dealing
with "Income from House Property" have also not been clubbed nor have
the sections dealing with business income. It, therefore, appears, that the
experiment started and finished with the sections on 'Trust' and 'Salary'.
The definition of "charitable purpose" under section 2(15) covers four
categories. The fourth category "advancement of any other object of
general public utility not involving carrying on of any activity for profit" has
given rise to much litigation. The commentators have referred to it at pages
356-358. They have, however, not noted the recent Supreme Court decision
in the Lok Shikshana Trust case18 in which the Supreme Court has confirmed
the Mysore view taken in C.I.T. v. Sole Trustee, Lok Shikshana Trust19" and
has disapproved Kerala and Andhra Pradesh High Courts' view in C.I.T. v.
Indian Chambrs of Commerce1* (followed in C.I.T. v. Cochin Chamber of Com-
merce and Industry™ and C.I.T. v. DharmodayamCo?1 and Andhra Pradesh
State Road Transport Corporation v. C.I.T.2* The majority judgment of
Khanna and Gupta, JJ., was that if the terms of the trust did not impose
restriction on profit making, "the court would be well justified in assuming,
in the absence of some indication to the contrary, that the object of the trust
involves the carrying on of any activity for profit."23 In Indian Chambers
of Commerce v. CJ.7 24 the Supreme Court not only adopted this view but
went further and held that the words "not involving the carrying on of any
activity for profit" governed the word "advancement" and not the words
"object of general public utility" and held that if the advancement or
attainment of the object involves an activity for profit, tax exemption would
not be available. These two judgments of the Supreme Court have set at
rest the long controversy and have perhaps put a curb on trusts enjoying
exemption from tax in respect of income from business carried on by a
trust and have reversed the trend whereby the business houses were extend-
ing their activities under the guise of trusts. In an article published in

18. Sole Trustee, Lok Shikshana Trust v. C.I.T, 101 I.T.R. 234 (1975).
18a, 77I:T.R, 61 (1970).
19. 801 T.R. 645(1971).
20. 87 I.T.R. 83 (1973).
21. 94I.TR.113(1974).
22. 100 I.T.R. 392(1975).
23. Supra not 18 at 243.
24. 101LT.R, 796,

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522 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol. 19 : 4

Taxation2* the implications of the aforesaid two Supreme Court judgments

have been ananlysed and the writers have opined that the aforesaid two
judgments of the Supreme Court have nullified the leading decisions under
section 12, e.g., (i) In re The Trustees of The Tribune?* (it) All India
Spinners Association v. C.I.T.'?1 (iii) C.I.T. v. Beach Candy Swimming Bath
Trust2S; and (iv) C.I.T. v. Andhra Chamber of Commerce.29 It is unfortunate
that Chaturvedi and Pithisaria have not noticed these very important judg-
ments of the Supreme Court and we do not have the benefit of their analysis.
It is interesting to note that Palkhivala has criticised30 the Supreme
Court's majority decision and preferred the minority decisions of Beg, J., in
the Lok Shikshana Trust case.
It may also be noticed that the authors have not given any commentary
under section 2(15). It would have been better if at page 46 after the
commentary of section 2(14), they should have at least mentioned that
for commentary of section 2(15), please see page... of the commentary
under section 11.
The authors have taken note of department's circulars on trusts which
they have given in extenso.zl They have also noticed at page 364 the con-
troversy as to the period within which the accumulated trust income should
be invested. Jammu and Kashmir High Court in C.I.T. v. Shri Krishen
Chand Charitable Trust32 has held that accumulated trust funds did not
have any shackles under the 1922 Act and 1961 Act up to 1971-72 and again
after 1975. It was further held that form No. 10 prescribed by rule 17 which
required the investment of accumulated income to be within six (previously
four months) from the end of the relevant account year; and (b) a request
to be made to the income-tax officer to give the benefit of this section to the
assessee is, to that extent, ultra vires.
Under the head 'salary income', an interesting question arises whether
the director or managing director of a company is an employee of the
company (in which case his income is assessable under the head 'salary') or
he is only an agent of the company (in which case his income would be
assessable under section 56 under 'other sources' or under section 28 as
'business income.') A director of a company, though holding an office
under the company, is not a servant or an employee of the company and
therefore, the director's fees received by him are taxable under section 56
and not under 'salary'. However, there may be special terms in the articles

25. S.R. Bhargava andN.L. Jain, Implications of the words "not involving the carrying
on of any activity for profit" in the definition of "Charitable purpose", 47Taxation,sec. 2,
p. 20 (1977).
26. 7. I.T.R. 415(1939),
27. 12 I.T.R. 482 (1944).
28. 27 I.T.R 279 (1955).
29. 55 I.T.R. 722(1965).
30. Supra note 1 at 281.
31. Supra note 6 at 358-361.
32. 98 I.T.R. 387 (1975).

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1*771 BOOK REVIEWS 521

of association or there may be an independent contract which may bring

about a contractual relationship between the director and the company
making the director an employee of the company. As the Supreme
Court held in Ram Prasad v. C.I.T.™ that when a contractual relationship of
master and servant is created between the company and its managing
director, the latter's remuneration is taxable under 'salary. 5 The commenta-
tors have discussed this subject exhaustively at pages 396-400.
Where the empoloyer has affected accident insurance in respect of the
employee and the employer pays the premium, does it amount to perquisite
in the hands of employee under section 177 The Delhi High Court had held
in C.I.T. v. Shri Dhar^ that section 17(2)(/v) does not cover such a personal
accident insurance policy because the employer for this own benefit kept
it alive in respect of the employee. Similarly, premium paid in respect of
the insurance on the life of the employee has been held to be not perqui-
site. 35 However, the Supreme Court in C.I.T. v. L.W. Russel 36 has held to the
contrary. The test appears t o be whether the employee had any vested
interest in the policy. While Palkhivala has noted these decisions at page
313, this reviewer failed to find any discussion of these cases by Chaturvedi
and Pithisaria though they have referred to other cases at page 407.
Another interesting topic which has raised a controversy is regarding
the taxability of city compensatory allowance paid to the government
servants. The Bombay High Court in C.LT. v. D.R. Phatak*7 held, after
reviewing English case-law, that city compensatory allowance is not taxable. In
Recketts v. Colquhoun,38 House of Lords held that a barrister who resided
and practised in London was not entitled to deduct the cost of travelling
between London and Portsmouth, to which place he travelled for rendering
his services of recordership. This was on the interpretation of the clause
"expenses wholly, necessarily and exclusively incurred in performance of
duties.*' It was held that performance of duties begins only when the
employee reaches the place of work and, therefore, travelling expenses
incurred in going from home to office and back would necessarily fall out-
side the clause. Reckitts* decision held the field and was criticised and
distinguished by the House of Lords in Pook v. Owen™ as being "very
unsatisfactory both in its results and in its reasonings." In Pook's case,
travelling expenses of a medical practitioner from his residence to the hos-
pital were allowed on the ground that doctor's duty started as soon as he
received a telephone call at his house and, therefore, the travelling from
his residence to the hospital was in the performance of his duties. Reckitts*

33. 86 I.T.R. 122(1972).

34. 84 I.T.R. 192(1972).
35. Richardson v. Lyon, 25 T,C, 497.
36. 53 I.T.R. 91 (1964).
37. 99 I.T.R. 14 (1975).
38. 10T.C, 118.
39. 45T.C. 571.

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524 JOURNAL OF THE INDIAN LA W INSTITUTE I Vol. 19 : 4

case was, however, not overruled and even in Taylor's case,40 the House
of Lords declined to overrule it. It is in this background that the question
arose whether city compensatory allowance paid to a government servant
can be claimed to be non-taxable under section 16(v) as being spent
"wholly, necessarily and exclusively in the performance of duties." The Bom-
bay High Court held in favour the assessee. The legislature promptly deleted
section 16(v) by the Finance Act, 1974 and added explanation to section
10(14) to take city compensatory allowance out of its purview. This was done
by the Finance Act, 1975, with retrospecive effect. The persent commentators
have noted the case-law at pages 428-429, while Palkhivala has noted it at
pages 306-7.
In this context, it is interesting to note the decision of the Madhya
Pradesh High Court in the Bishambar Dayal case41 Bishambar Dayal
was the Chief Justice of the Madhya Pradesh High Court and he was paid
compensatory allowance under article 222 (2) of the Constitution of India
as he had been transferred to Madhya Pradesh from the Allahabad High
Court. The question was whether the said compensatory allowance was
taxable as part of the Chief Justice's salary. The Madhya Pradesh High Court
(P.K. Tare, C.J., and S.S. Sharma, J.,) held that 'salary' would mean
remuneration for services rendered. Any compensatory allowance can
never be interpreted to signify additional salary. Similarly, "perquisite''
would mean some benefit to an employee in addition to his salary. In the
case of compensatory allowance, they observed that there was no question
of any such additional benefit but merely counter-balancing a loss or
inconvenience sustained. In this connection, they referred to the definition
of "compensatory allowance" in the Fundamental Rule 9 (5). They, there-
fore, held that compensatory allowance was not covered by the terms
"salary" or "perquisite" and was, therefore, not taxable. The learned
judges observed that it was unnecessary to consider the provisions of
sections 16(v) and 10(14) of the Income Tax Act. In view of this judgment,
deletion of section 16(v) and adding of explanation to section 10(14) of
the Income Tax Act appears to have misfired. However, this interesting
aspect has not been examined by the author nor by Palkhivala as volume
103 has not been covered by the commentators.
This reviewer is of the opinion thatChaturvedi and Pithisaria should have
given "table of cases" in the beginning of the book as is normally given by
other commentators. In the absence of the said table of cases, it is very
difficult to find out whether a particular case-law has been reported in this
volume or not.
Section 37 is the residuary section under which deduction is allowable in
respect of expenditure laid out or expended wholly and exclusively for the

40. Taylor v. Provan, 49 T.C. 579.

41. Bishambar Dayal v. C.I.T, 103 I.T.R. 813 (1976).

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 BOOK REVIEWS 525
purpose of business or profession. The present commentators have dealt with
this topic very exhaustively in pages 731-843 (112 pages). It would, perhaps
be unfair to expect from the commentators any guidance regarding the
current controversy raging over advertisements by business houses in the
election souvenirs. It is stated in the Press that in June, 1976, a circular
was issued by the Central Board of Direct Taxes to income-tax commis-
sioner that no distinction be drawn between expenditure on advertisements
in souvenirs and the other type of advertisements for the purposes of
allowing deductions under section 37(3) of the Act. Subsequently, the Central
Board of Direct Taxes clarified that advertisements in different issues of
souvenirs may be treated separately. Blitz (April 9, 1977 issue) claims that
Rs. 60 crores were collected by the Congress party for souvenirs. Sizable
collections must have been made by the other parties also. Section 293 A of
the Companies Act bans donations by the corporate sector for political pur-
poses. Shareholders of some companies have filed writ petitions in the Bom-
bay High Court to restrain the companies from making any donations or
payments for the election souvenirs. It is a moot question whether souvenirs
have any utility from the business point of view and whether the expenditure
on souvenirs can be held to be expenditure incurred wholly and exclusively
for the purposes of the business. In many cases, souvenirs may even have
not been printed. These legal issues are likely to be thrashed out in the near
future and may enrich the literature on income-tax and company matters.
Section 40A(3) of the Income Tax Act lays down that payment in
excess of Rs. 2,500/- other than by a crossed cheque would not be allowable
as a deduction. Rule 6DD of the Income Tax Rules has indicated catego-
ries of payments which are entitled to exemption from the said section.
While the commentators have given on pages 875-880 the Central Board of
Direct Taxes' circulars, they have unfortunately not discussed the far-
reaching implications of this provision. According to one interpretation,
all payments made by business houses exceeding Rs. 2,500/- other than by
crossed cheque are hit by this provision. An example of a hard case can be
where a businessman makes purchases of Rs 10 lakhs in cash in a year and
his net profit for the year is Rs. 10,000/-. As the purchases have been
made in cash, exceeding Rs. 2,500/- in each case, the income-tax
officer under this provision can refuse to allow the deduction of purchases
of Rs. 10 lakhs in the trading account and could compute the taxable
income for the year at Rs. 10,10,000. Though this is an extreme example,
yet many cases have happened of milder type and they have gone in appeals
before the Income-tax Tribunal and to the High Courts. The Allahabad
High Court in U.P. Hardware Store v. C.I.T*2 and the Orissa High Court in
the Sajowanlal Jaiswal case43 have upheld the income-tax offiicer's action
in disallowing even the purchases. The tax-payers' plea that this section

42. 42 Taxation, sec III, p. 123 (1976). '

43. Sajowanlal Jaiswal v. CLT.> 103 I.T.R. 706 (1976).

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S16 JOURNAL OF THE INDIAN LAW INSTITUTE [Vol 19 : 4

covers only expenditure.debited to profit and loss account and covered by

sections 30 to 37, has not been accepted by these High Courts. Unfortuna-
tely, the commentators h^ve nqt dealt with this aspect nor, have they
discussed at page 880 in dept& the Andhra Pradesh High Court's decision in
the Mudiam Oil Company case^4 where the High Court held that the provi-
sions of section #)A(3) are not ultra vires. There also the High Court
made certain observations to the effect that the section is wide enough to
cover the purchases and is not to be narrowly construed to cover only
expenses debited to profit and loss accounts (as contended by the tax-payer).
Section 40A(5) prescribes an overall ceiling of allowability of remunera-
tion to employees at Rs. 5,000/-per month of salary and Rs. 1,000/-per
month of perquisites. The commentators have .summarised these provisions
at pages 881-2. This reviewer is of the opinion that the authors should have
given a more detailed consideration to these provisions, e.g., whether
remuneration to the director who is also an employee would be governed
by the provisions of this section. This is a problem which is likely to be
hotly contested.
The advantage of the commentary on such sections which are unclusttered
by case-law is that besides affording guidance to the lawyers and the assessees
to gain insight into some of the more bewildering new provisions, the views
of the commentators even mould and influence the interpretation which • the
courts would be called upon to place on these provisions.
One concludes in the fond hope that the authors will not make one wait
for another five years before bringing out another edition, more so when the
present edition needs up-dating, in the light of few suggestions which this
reviewer has ventured to make in this review,
Rajendra*

44. Mudiam Oil Co. v. LT.O.t 92 I.T.R. 519 (1973).

♦M.A., LL.M,, Registrar of Restrictive Trade Agreements, Monopolies and Restrictive
Trade Practices Commission, New Delhi.

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