B.P.Jeevan Reddy, C.J. - (1.) Under Section 256(2) of the Income-tax Act, 1961, the Tribunal has stated the following question : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's view that the words 'cultivator, grower or producer' occurring at the end of Rule 6DD(f) qualify the products of horticulture or agriculture only and they do not qualify the other clauses mentioned in the said rule ?"
(2.) The assessee is a registered firm dealing in timber. While scrutinising the accounts for the previous year relevant to the assessment year 1970-71, the Income-tax Officer found that the assessee has made payments for purchase of timber to the extent of Rs. 28,565 to various parties in cash exceeding Rs. 2,500. The assessee admitted that these payments were made at Kanpur. The Income-tax Officer felt a doubt about the identity of the recipients of the said amount. Accordingly, he disallowed the deductions and added back the said amount to the assessee's income. On appeal, however, the Appellate Assistant Commissioner opined that the payments made for purchase of forest produce are exempt from the operation of Section 40A(3) by virtue of Rule 6DD(f)(i) of the Income-tax Rules. Accordingly, he allowed the appeal. The Revenue carried the matter in appeal to the Tribunal which dismissed the same agreeing with the opinion of the Appellate Assistant Commissioner, whereupon the present reference was obtained.
(3.) It is found by the authorities under the Act as well as by the Tribunal that these payments were made not directly to producers of forest produce but to brokers or timber suppliers, as the case may be. It is in the light of this fact that the question of law referred herein has to be gone into. The assessee's case is that the words "cultivator, grower or producer" occurring at the end of Clause (f) qualify only the words occurring in the immediately preceding sub-clause, namely, Sub-clause (iv), and not all the four sub-clauses. For a proper appreciation of this contention, it would be appropriate to set out Sub-section (3) of Section 40A and Rule 6DD(f) in so far as they are relevant : "40A(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1989) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding ten thousand rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduduc-tion :.... Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding ten thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors." "Rule 6DD. No disallowance under Sub-section (3) of Section 40A shall be made where any payment in a sum exceeding ten thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely :--... (f) Where the payment is made for the purchase of (i) agricultural or forest produce ; or (ii) the produce of animal husbandry (including hides and skins) or dairy or poultry farming ; or (iii) fish or fish products ; or (iv) the products of horticulture or agriculture, to the cultivator, grower or producer of such articles, produce or products.";