1981 PLP 1029 (SCMR)

As aforesaid, the controversy in this appeal revolves around clauses (iii) and (xvi) of subsection (2) of section 10 of income-tax Act- 1922, which two clauses read as follows :- "10.-(2) Subject to the provisions of this Act such profits or gains shall be computed after making the following allowances, namely :- (iii) in respect of capital borrowed for the purposes of the business, profession or vocation, the amount of the interest paid ; (xvi) any expenditure (not being in the nature of capital expenditure of personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation." (Provisos to clause (iii) not reproduced as unnecessary) Mr. Amirzada Khan, learned counsel for the appellant contended that clause (xvi) was of residuary nature, while clause (iii) was a special provision, and if what the assessees had sought by way of deduction was interest paid on capital borrowed by the assessees for their business, the deduction sought would be permissible, if at all, under the special provision contained in clause (iii), and if the assessees failed to make out a case under the special provision, it will not be open to them to fall back upon the residuary general clause (xvi), for the rule of interpretation is generalia specialibus non derogant-Things special derogate from things general. In support of this contention, the learned counsel invited our attention to a D.B. judgment of the Lahore High Court in the case of Commissioner of Income-tax v. Attock Oil Company Ltd. (P L D 1967 S C 524) in which the question before the Court was whether educational expenses incurred by the assessee, which were admittedly not admissible under the specific provision contained in clause (xiv-a) of subsection (2) of section 10 of the Act, were admissible under the general clause (xvi) as expenditure wholly and exclusively incurred for the purposes of business. The Court examined the scheme of the entire subsection (2) of section 10 of the Act which lays down that for the purpose of income-tax the profits or gains of a business shall be computed after making due allowance for the expenditure incurred under clauses (i) to (xviii) enumerated thereunder. The expenditure enumerated in subsection (2) of section 10 is admissible subject to the con ditions laid down in the respective clauses. The Court came to the conclusion that excepting clause (xvi) the remaining clauses are sufficiently specific and restrictive in laying down the limits within which deduction was permissible, while clause (xvi) was of a general nature, which allows for any expenditure laid out or expended wholly and exclusively for the business and, therefore, for the interpretation of this clause it was necessary to apply the rule generalia specialibus non derogant for any other construction would mean that the general and more comprehensive clause (xvi) will not only be overlapping, but also destructive of most of the other special clauses. The two competing clauses of subsection (2) of section 10, around which the controversy in this case revolved, read as follows :- "any expenditure (not being in the nature of capital expenditure) laid out or expended on any educational institution or hospital established for the benefit of employees, their families and dependents or on the training of industrial workers. Provided that no deduction under this clause shall be allowed where any charge is made for the services rendered by such institution or hospital." (clause xiv-a) "any expenditure (not being in the nature of capital expenditure or per sonal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation." (clause xvi) And the Court held that since the assessee was charging fees from the em ployees' children in the educational institutions the educational expenses could (P L D 1967 S C 524) not be allowed under the residuary clause (xvi), for the deduction claimed was inadmissible under the special provision, namely clause (xiv-a) of subsection (2) of section 10 of the Act. Learned counsel next argued that the reliance by the High Court in the impugned judgment on the decision of the Supreme Court of India in the case of Bombay Steam Navigation Co. v. Commissioner of Income-tax, Bombay was misplaced inasmuch as in that case interest paid by the assessee was allowed under the general clause of subsection (2) of section 10 of the Act, on the finding that the transaction between the assessee and the Company, to whom the interest was payable, was not a loan transaction, but interest on deferred payment of part consideration due from the assessee for purchasing certain assets. For the proper understanding of subsection (2) of section 10 of the Income-tax Act, I may, with advantage, refer to this Court's decision in the case of Commissioner of Income-tax v. Engineers Ltd. (1) in which the assessee had claimed by way of expenditure a sum of Rs. 7,70U spent on the training abroad of two Engineer Directors as deductible item under clause (xvi) as a sum wholly and exclusively laid out in the interest of the assessee's business. The Department had contended that such an expenditure was deductible if at all under specific clauses (xii), (xiv) or (xv), and since the assessee's case was not covered by any of these clauses, the assessee was not entitled to fall back upon the residuary clause (xvf). The clauses in controversy read as follows :- "(xii) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business ; (xiv) any expenditure of a capital nature on scientific research related to the business ; (xv) any expenditure laid out or expended on the training abroad of citizens of Pakistan, in connection with a scheme approved by the Central Board of Revenue for the purposes of this clause." (xvi) reproduced above. The Court repelled the contention of the Department holding: "The scope of clause (xvi) which is of residuary nature is thus wholly different from the same included in clauses (xii), (xiv) and (xv). There being no similarity of subject-matter between clauses (xii), (xiv)y (xv) and (xvi) of section 10 (2) the of rule generalibus specialia derogant was clearly not attracted." Thus, it will be noticed that the Courts will have to examine the scope of each clause and the occasion to apply the rule `things special derogate from things general' will arise only if the scope between the special and genera clauses was the same. If these are parallel clauses, or if in its application B there was no conflict between the two clauses, it will be immaterial if deduction is granted under the general clause while it may more appropriately fall under the specific clause. There will be then no occasion to have recourse to this rule of construction. Let me illustrate. Clause (iii) speaks of interest on capital borrowed by the assessee for the purposes of its business and if in a given case none of the provisos to this clause is attracted the interest paid will be equally an expenditure incurred exclusively for the purposes of business, In such an event, it will, in substance, make no difference if deduction is grant ed under clause (xvi), though it would be more appropriate to mention clause (iii). Applying the above rule to the facts of the present case, we find that the Tribunal took the view that there was no relationship of lender and borrower in the strict sense of the term and the credits and deposits in question could C not be said to be `capital borrowed', notwithstanding the fact that if the money which was credited in the name of the creditors had not been used for the assessees' business, the assessees would have been obliged to obtain advance from outside to whom interest would have been payable by the assessees, and if the depositors had advanced the money elsewhere, they would have also received interest. The reasons given in fact prove a loan transaction between the depositor and the assessees, and this was quite candidly conceded by the learned counsel for the Department. We, therefore, are of the view that the interest paid was more appro priately deductable under clause (iii) and the fact that this deduction was allowed by the Department as falling under clause (xvi) is, for the reason aforementioned, irrelevant, for, in the present case, the expenditure incurred can also be said to fall under general clause (xvi) of subsection (2) of section 10 of the Income-tax Act. The result, therefore, is that these appeals are dismissed, though for different reasons. There will, however, be no order as to costs. Appeal dismissed.