Kochu Thommen, J. - These four Original Petitions arise from similar circumstances and raise a common question of law. In all the Original Petitions, with the exception of O.P. No. 3095 of 1973, the main prayer is for a declaration that sub-s. (3) of S. 40A of the Income-tax Act, 1961 is unconstitutional and violative of Arts. 14 and 19(1)(g) of the Constitution. The petitioner in O.P. 3095 of 1973 had merely asked for an appropriate order restraining the respondents from collecting the balance tax for the assessment year 1970-71 till the disposal of Writ Petition No. 1197 of 1973.
2. We shall first deal with O.P. No. 1087 of 1973. The petitioner is a firm carrying on business in textiles and is an assessee under the Income-tax Act, 1961. The petitioner filed the return for the assessment year 1970-71 in which it showed a total income of Rs. 43,080/-. The Income-tax Officer completed the assessment on a total income of Rs. 88,980/- and disallowed a sum of Rs. 46,060/- under S. 40A(3) of the Act. This amount represents various payments made by the petitioner to its customers in cash. The Income-tax Officer held that these payments were not deductible in computing the income of petitioner under the head 'profits and gains of business or profession', as such payments were made in cash and contrary to the requirements of sub-s. (3) of S. 40A. The petitioner contends that the various payments effected by it were genuine payments and the department has not doubted their genuineness. The petitioner says that its customers were not willing to accept the cheques and they could not be compelled to accept them,, cheques not being legal tender. It is contended that S. 40A(3) imposes an unreasonable restriction and it violates Articles 14 and 19(1)(g) of the Constitution. The petitioner points out that the sum of Rs. 2,500/- prescribed under the sub-sections as a limit for payments in cash for the purpose of allowable deduction in computing the income of a person is an arbitrary limit and that it is discriminatory in character. The petitioner has thus prayed for the above mentioned declaration and for a writ certiorari to quash the Ext. P1 assessment order and Ext. P3 appellate order. In a counter affidavit filed by the Commissioner of Income-tax on behalf of the 1st respondent, he points our that the petitioner and its customers could have transacted their business by cheques or drafts as banking facilities were available to them. He points out that in cases where such facilities were not available, deductions for cash payments were in fact allowed. In paragraph 7 of the counter-affidavit it is pointed out that sub-section 3 of S. 40 A is a provision which was introduced in the Act by means of an amendment specifically for the purpose of preventing unaccounted money of revenue and national economy.
3. S. 40 A reads as follows :
1. The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head 'Profits and gains of business or profession'.
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, 1959) 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 :
Provided that where an allowance has been made in the assessment for any year not being an assessment year commending prior to the 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof 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, the allowance originally made shall be deemed to have been wrongly made and the Income-tax Officer may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of S. 154 shall, so far as may, apply thereto, the period of four years specified in sub-s. (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was so made :
Provided further that no disallowance under this subsection shall be made where any payment in a sum exceeding two thousand five hundred 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.
(4) Notwithstanding anything contained in any other law for the time being in force in any contract, where any payment in respects of any expenditure has to be made by a crossed cheque drawn on a bank or by a crossed bank draft in order that such expenditure may not be disallowed as a deduction made under sub-section (3), then the payment may be made by such cheque or draft; and where the payment is so made or tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner ...'
4. Sub-section (3) of S. 40A does not say that any payment in a sum exceeding Rs. 2,500/-. Otherwise than by a crossed cheque or crossed bank draft, is prohibited. It merely says that such payments shall not be deductible in the computation of income. In other words, payment in cash exceeding Rs. 2,500/- is not prohibited, but it shall not be allowed as a deduction. The second proviso to the same sub-section, however, says that deductions shall be allowed in respect of such payments in those cases and circumstances which are prescribed by the Government, 'having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.'
5. The Government have by rules specified the various cases and circumstances in which payment in cash would not disentitle the assessee to the deductions. These are enumerated under Rule 6DD of the Income-tax Rules, 1962, and they show that exemptions have been granted in cases where hardship would otherwise be caused.
6. The vires of S. 40A of the Act came up for consideration before the Andhra Pradesh High Court in Mudiam Oil Co. and others vs . Income-tax Officer and others - : [1973]92ITR519(AP) . Upholding the constitutional validity of the Section, the court expressed itself as under :
'As already noticed sub-section (3) of S. 40A has been introduced to encounter problems arising out of evasion of tax. More stringent measures were required to plug the loopholes. Computation of income under the head 'profits and gains of business or profession', has to be made in accordance with the provisions contained in sections 30 - 43. The provisions of S. 40, which deal with amounts not deductible, were found to be inadequate to deal with the evasion of tax under the cloak or guise of permissible deductions. It is to remedy that mischief resulting in loss of revenue to the State that sub-section (3) of Section 40A was introduced ...
The restriction imposed requiring payment, in case it should be a permissible deduction, by a crossed cheque or a crossed bank draft is not only reasonable but in public interest to save loss of revenue to the State. That apart, deductions cannot be claimed as a matter of right. The assessee claiming deduction must show that his claim comes within the four corners of the provisions which permit deduction ...
If the restriction on cash payments beyond the limit prescribed by subsection (3) of section 40A is imposed, it is to exclude clandestine transactions with unaccounted money. The Constitution does not guarantee an unrestricted privilege to enter into commercial transactions as one pleases'. (Pages 526 & 527).
The petitioner had contended in the Andhra Pradesh High Court that sub-section (3) and (4) of Sections 40A were ultra vires the powers of the Parliament under Entry 82, List I of the 7th Schedule and that they violated the fundamental right guarantee under Article 19(1)(g) of the Constitution. The petitioner also contended that Rule 6 DD was beyond the competence of the rule making authority and repugnant to Article 14 of the Constitution. All these contentions were rejected by the Court and the petition was dismissed.
7. We are in respectful agreement with the observations of the Andhra Pradesh High Court in the case cited above. In our judgment the impugned section cannot be considered to be either arbitrary or discriminatory or ultra vires the powers of Parliament. The section does not impose any unreasonable restriction upon the freedom mentioned in Article 19(1)(g) of the Constitution. The restrictions imposed under the Section are only regulatory and such regulations are for the protection of national economy. These provisions are intended to prevent unaccounted money being used for clandestine transactions. Such restrictions are imposed by the statute in public interest and they cannot therefore be considered to be unreasonable in character. The section provides for various exemption being granted by means of rules. Such rules have in fact been framed by the Government as pointed out above. The various cases specified under the rule 6DD indicate that no undue hardship will be caused to any person on account of the restrictions imposed under the Section.
8. The petitioner has further contended that cheque is not a legal tender and therefore no person can be compelled to accept cheque or draft as Section 40A(3) purports to do. The sub-section does not compel any person to make any payment by cheque or draft; not does it compel any person to accept such cheque or draft. All that the section says is that any payment made in excess of Rs. 2,500/-otherwise than by a crossed cheque or a crossed bank draft will not be treated as an expenditure which is allowed to be deducted in computing the income. To claim the privilege of deduction, the assessee has to come within the four corners of the relevant provisions of the Act. Sub-s. (3), as already stated, is not prohibitory but only regulatory. Any payment or tender of payment in the prescribed manner is protected under sub-s. (4) which is as follows :
'Notwithstanding anything contained in any other law for the time being in force or in any contrary, where any payment in respect of any expenditure has to be made by a crossed cheque drawn on a bank or by a crossed bank draft in order that such expenditure may not be disallowed as deduction made under sub-s. (3), then the payment may be made by such cheque or draft; and where the payment may be made by such cheque or draft; and where the payments so made or tendered, no person shall be allowed to raise in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner'.
This sub-section thus provides ample protection for any debtor who has made or tendered payment by cheque or draft. Once such a payment is made or tendered in terms of sub-s. (3), the creditor cannot raise a plea in a suit or other proceedings that proper payment has not been made or tendered. Payment by cheque or draft has come to be accepted as a valid payment in modern business. Such payment represents and produces cash. 'Gingling cash' is no longer the only mode of payment that is prevalent in business . This Court has held in Joseph Varghese vs. Annamma (ILR 1971 Vol. 1 Kerala 494) that a tender by way of demand draft is a valid tender of money. We see no merits in the contention that the requirement of S. 40A(3) is unreasonable or arbitrary. In this connection, it may be apposite to extract a passage from the judgment of the Supreme Court in Pooran Mal vs . Director of Inspection (Investigation) Income-tax, New Delhi : [1974]93ITR505(SC) dealing with the powers to search and seizure under the Income-tax Act, 1961, the Court said :
'When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in article 19(1)(g) one cannot possibly ignore how such evasions eat into the vitals of the economic life of the community. It is a well-known fact of our economic life a that huge sums of unaccounted money are in circulation endangering its very fabric. In a country which has adopted high rates of taxation a major portion of the unaccounted money should normally fill the Government coffers. Instead of doing so it distorts the economy. Therefore, in the interest of the community, it is only right that the fiscal authorities should have sufficient powers to prevent tax-evasion. (Page 516).
9. We also do not see any merits in the contention of the petitioner that the impugned provision is dis-criminatory. As stated by the Supreme Court in Ram Krishna Dalmia vs . Justice Tendolkar. : [1959]1SCR279 :
'The legislature is free to recognize degrees of harm and may confine its sub-section (3) of S. 40A is 'beyond the powers of Parliament', the petitioners counsel did not in our opinion rightly urge this ground before us. We may nevertheless state here that, in our judgment, (the impugned provision is well within the legislative competence of the Parliament by virtue of Entry 82 in List I of the Seventh Schedule to the Constitution.)
The same question of law arises in all four Original Petitions. In the light of what is stated above, we dismiss all the four Original Petitions.