1982 (9) TMI 120

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....epreciation was claimed and presumably allowed also thereon. 4. The ITO, however, thought that section 40A(3) of the Income-tax Act, 1961 ('the Act') applied in the matter. This section, to the extent relevant, reads as under : "(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, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding two thousand five hundred 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 deduction." 5. The ITO held that the payment of Rs. 4,500 appears to have been made in....

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....ee's claim has substance. 9. The provision was introduced by the Finance Act, 1968. Section 40A carries the heading 'Expenses or payments not deductible in certain circumstances', section 40A(1) says that the provisions of section 40A shall have effect notwithstanding any other provision to the contrary in the Act relating to the computation of income under the head 'Profits and gains of business or profession'. Section 40A(2) relates to admissibility of expenditure in the computation of business profits which represents a payment for goods, services or facilities acquired by the taxpayer but which payment is not seen to be at arm's length as per the guidelines laid down in section 40A(2) itself. Then comes section 40A(3), which talks of....

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....e legitimate to call history in aid to show what facts existed to bring about a statute, the inference drawn therefrom are exceedingly slight." But in construing an enactment (as in this case) regard must be had not only to the words used, but to the history of the Act and the reasons which led to it being passed. One has to look to the mischief which had to be cured as well as to the cure provided [Per Lord Lindley M.R. in Thomson v. Lord Chanmorris [1980] 1Ch.718. See also K.P. Varghese v. ITO [1981] 131 ITR 597 (SC)]. It would be permissible in such a context to see what reasons induced the mover of the relevant Bill in the House and what were the objects sought to be achieved. This is for the limited purpose of ascertaining the condi....