PARIPOORNAN - (1.) IN this batch of cases - writ petitions filed under Article 32 of the Constitution of INdia and civil appeals and special leave petitions filed under Article 136 of the Constitution of INdia - substantially similar questions arise for consideration. The matter arise under the INcometax Act, 1961. The validity of Sections 44AC and 206C of the INcome-tax Act, 1961 (hereinafter referred to as 'the Act') is posed for consideration. Various assessees challenged the aforesaid provisions as ultra vires and beyond legislative competence and also violative of Articles 14 and 19(1) (g) of the Constitution of INdia in a few High Courts. Substantially, the challenge was not accepted by all the High Courts. A few High Courts have read down the provisions of Section 44AC of the Act. Dissatisfied by the same, the assessee have come up in appeal. Feeling aggrieved by the reading down of Section 44AC of the Act, the Union of INdia has come up in appeals. Those are covered by civil appeals. Certain other assessees have challenged the aforesaid provisions directly under Article 32 of the Constitution of INdia. Those are covered by writ petitions. A few assessees, feeling aggrieved by the decisions of the High Courts, have filed special leave petitions seeking leave of this Court to file appeals. Since all these three classes of cases involved consideration of the validity or otherwise of Sections 44AC and 206C of the Act, they were heard together.
(2.) SECTION 44AC of the Act was inserted by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1-4-1989. SECTION 206C of the Act was inserted by the Finance Act, 1988 with effect from 1-6-1988. The above sections are re-produced herein below :- "44AC. Special provision for computing profits and gains from the business or trading in certain goods :- (1) Notwithstanding anything to the contrary contained in SECTIONs 28 to 43C, in the case of an assessee, being a person other than a public sector company (hereafter in this section referred to as the buyer), obtaining in any sale by way of auction, tender or any other mode, conducted by any other person or his agent (hereafter in this section referred to as the seller), - (a) any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor), a sum equal to forty per cent of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head "Profits and gains of business or profession." : Provided that nothing contained in this clause shall apply to a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act; The following explanation is being inserted by the Finance Act, 1990 with effect from 1/04/1991 : Explanation :- For the purpose of this clause, purchase price means any amount (by whatever name called, paid or payable by the buyer to obtain the goods referred to in this clause, but shall not include the amount paid or payable by him towards the bid money in an auction, or as the case may be, the highest accepted offer in case of tender or any other mode : (b) the right to receive any goods of the nature specified in column (2) of the Table below, or such goods, as the case may be, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of the amount paid or payable by the buyer in respect of the sale of such right or as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head "Profits and gains of business or profession." JUDGEMENT_465_3_1996Html1.htm (2) For the removal of doubts, it is hereby declared that the provisions of sub-section (1) shall not apply to a buyer (other than a buyer who obtains any goods, from any seller which is a public sector company) in the further sale of any goods obtained under or in pursuance of the sale under sub-section (1). (3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportions as the turnover of such other business bears to the total turnover of the business carried on by the assessee. Explanation :- For the purposes of this section, "seller" means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm (or cooperative society)". "206C. Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap. etc. :- (1) Every person, being a seller referred to in SECTION 44AC, shall, at the time of debiting of the amount payable by the buyer referred to in that section to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said table; of such amount as income-tax on income comprised therein. TABLE JUDGEMENT_465_3_1996Html2.htm Provided that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods referred to in the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of this sub-section shall not apply so long as the certificate is in force. (2) The power to recover tax by a collection under sub-section (1) shall be without prejudice to any other mode of recovery. (3) Any person collecting any amount under sub-section (1) shall pay within seven days the amount so collected to the credit of the Central Government or as the Board directs. (4) Any amount collected in accordance with the provisions of this section and paid under sub-section (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable. (5) Every person collecting tax in accordance with the provisions of this section shall within ten days from the date of debit or receipt of the amount furnish to the buyer to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed. (5A) Every person collecting tax in accordance with the provisions of this section shall prepare half yearly returns for the period ending on 30th September and 31st March in each financial year, and deliver or cause to be delivered to the prescribed Income-tax authority such returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed. (6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3). (7) Without prejudice to the provisions of sub-section (6), if the seller does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of two per cent per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid. (8) Where the tax has not been paid as aforesaid, after it is collected, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (7) shall be a charge upon all the assets of the seller." The above new provisions enable the Revenue to estimate the profits on a "presumptive basis". It appears that Government wanted to get over the problems in assessing income and recovering tax in the case of persons dealing in country liquor, timber, forest produce, etc. Experience revealed that a large number of persons dealing in the said commodities did not maintain any books of account or the books of account maintained by such persons are incomplete. The business of the above mentioned persons existed only for a short period - a year or two. After the period of contract or agreement, it was impossible to trace them in many cases. Many of them were found to be dealing in benami names. There was evasion on a large scale. Government found it difficult to collect the tax due from such person. Section 44AC occurs in Chapter VI of the Act dealing with computation of total income. Sub-section (d) deals with computation of profits and gains of business or profession. Section 44AC (1) determines the profits and gains of the year from the business of trading in certain specified goods like liquor (other than Indian made foreign liquor, timber and forest produce) at a particular percentage specified therein. Section 44AC (2) states that the above provisions shall not apply to second or subsequent sale of such goods. Section 44AC (3) is only a clarificatory provision. The explanation to the section specifies the seller as Central Government, State Government, Local Authority, Corporation etc. Section 206-C deals with collection and recovery of tax. Section 206C (1) obliges the seller of the specified goods to collect from the purchaser an amount equal to collect from the purchaser an amount equal to the percentage mentioned in the Table as income tax. The goods mentioned in the Table are the very same goods mentioned in Section 44AC. Sub-sections (2) to (5) of Section 206C of the Act are further machinery provisions. In particular, sub-section (4) provides that any amount collected under the section shall be deemed to be payment of tax on behalf of the purchaser and provides for the issuance of a certificate evidencing such payments. Section 44AC came into force from 1-4-1989. Section 206C came into effect from 1-6-1988. The scope of the aforesaid provisions was explained in a memorandum of Finance Bill, 1988. It is to the following effect :- "New provisions to counteract tax evasion by liquor contractors, scrap dealers, dealers in products, etc. Considerable difficulty has been felt in the past in making assessment of incomes in the case of persons who take contracts for sale of liquor, scrap, forest products, etc. It has been the Department's experience that for taking such contracts, firms or associations of persons are specifically constituted and very often no trace is left regarding them or their members after the contract has been executed. Persons have also been found to have taken contracts in benami names by floating undertakings or associations for short periods. Since tax is payable in the assessment years in respect of the incomes of the previous years, the time by which the incomes from such sources become assessable, such persons are not traceable. At the time of assessment in these cases, either the accounts are not available or they are grossly incorrect or incomplete. Thus, even if assessments could be made on ex parte basis, it becomes almost impossible to collect the tax found due, either because it becomes difficult to establish the identity of the persons and trace them or because of the fact that the persons in whose names contracts are taken are men of no means. With a view to combat large-scale tax evasion by persons deriving income from such businesses, the Bill seeks to insert a new Section 44AC to provide for determination of income in such cases. Taking into account the experience gained in the past regarding the ratio of profit to the sale consideration the proposal is to provide that sixty per cent of the amount paid or payable by such persons on sale would constitute income of the tax payers, i. e., the buyer. The provisions of this section will apply only to an assessee, being a buyer of any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor) or any forest produce, scrap or waste, whether industrial or non-industrial, or such other goods, as may be notified by the Central Government, at the point of first sale. The word "seller" connotes the Central Government. State Government or any local authority or corporation or authority established by or under a Central Act or any company. The provisions of this section shall not apply to any buyer in the second or subsequent sale of such goods. This amendment will take effect from 1/04/1989, and will, accordingly, apply to assessment year 1989-90 and subsequent years. Further, with a view to facilitate collection of taxes from such assessees, it is proposed to introduce a new section 206C to provide that any person, being a seller, referred to in Section 44AC, shall collect income-tax of a sum equal to twenty per cent of the amount paid or payable by the buyer, as increased by a surcharge for purpose of the Union calculated on the income-tax at the rates in force. Such sum is required to be collected either from the buyer at the time of debiting the said amount to the account of the buyer or at the time of the receipt of that amount from the buyer, whichever is earlier. This mode of recovery of tax shall be without prejudice to any other mode of recovery. The tax so collected by the seller shall be paid to the credit of the Central Government or as the Board directs, within seven days from the date of collection. It will be treated as tax paid on behalf of the person from whom the amount has been collected and credit shall be given for such amount in the assessment made under this Act on production of a certificate. The new section also provides that if a seller does not collect or after collecting fails to pay the tax, he shall be deemed to be an assessee in default in respect of the tax and the amount of the tax together with the amount of simple interest, calculated at the rate of two per cent per month or part thereof, shall be a charge upon all the assets of the seller. These amendments will be made effective from 1/06/1988."
(3.) CIRCULAR No. 525 dated 24-11-1958 and CIRCULAR No. 528 dated 16-12-1988, issued by C. B. D. T., have explained the scope and ambit of Section 44AC and Section 206C of the Act. The matter at issue came up for consideration before the High Courts of Andhra Pradesh, Kerala, Himachal Pradesh, Orissa, Punjab and Haryana and Patna, in different forms. The decisions therein are : (1) A. Sanyasi Rao v. Govt. of Andhra Pradesh, 178 ITR 31 : (1989 Tax LR 522) - (Andh Pra). (2) P. Kunhammed Kutty Haji v. Union of India, 176 ITR 481 : (1989 Tax LR 447) - Single Bench - Kerala. (3) T. K. Aboobacker v. Union of India, 177 ITR 358 : (1990 Tax LR 460) - Division Bench - Kerala.(4) Gian Chand Ashok kumar and Company v. Union of India (1991) 187 ITR 188) - Himachal Pradesh. (5) Sri Venkateswara Timber Depot v. Union of India (1991) 189 ITR 741 - Orissa. (6) State of Bihar v. Commr. of Income tax, 202 ITR 535 : (1993 Tax LR 593) - Patna. (7) Ramjee Prasad Sahu v. Union of India, 202 ITR 800 : (1993 Tax LR 593) - Patna.(8) Madan Mohan Gupta v. Union of India, (1993) 204 ITR 384 - Patna. (9) Bhagwan Singh v. Union of India, (1994) 209 ITR 824 - Patna.(10) Sat Pal and Co. v. Excise and Taxation Commr., (1990) 185 ITR 375 - Punjab and Haryana. (11) K. K. Mittal and Co. v. Union of India, (1991) 187 ITR 208 - Punjab and Haryana. (12) K. K. Mittal and Co. v. Union of India, (1993) 203 ITR 201 - Punjab and Haryana. (13) Fairdeal Trading Co. v. Union of India, (1993) 204 ITR 645 - Punjab and Haryana. We should state that the legislative competence of Parliament of enact Sections 44AC and 206C of the Act was upheld by all the High Courts. In the decisions of the Kerala High Court - 176 ITR 481 : (1989 Tax LR 447) and 177 ITR 358 : (1990) Tax LR 460) - the main challenge was against the legislative competence only. The challenge against the aforesaid statutory provisions on the ground of legislative competence, violation of Articles 14 and 19 of the Constitution of India and the interpretation to be placed on the provisions, directly came up before a Division Bench of the Andhra Pradesh High Court in A. Sanyasi Rao's case 178 ITR 31 : (1989 Tax LR 522). In the said decision, the High Court, upholding the validity of the Act, read down Section 44AC of the Act and held that the said provision is only an adjunct to and explains the provisions of Section 206C and does not dispense with the regular assessment in accordance with the provisions of the Income Tax Act. The non-obstante clause in Section 44AC was explained. The said decision was substantially followed by the Orissa and the Punjab and Haryana High Courts in the decisions reported in Sri Venkateswara Timber Depot's case (1991) 189 ITR 741 and Sat Pal and Company's case (1990) 185 ITR 375. In the other decisions, the content or meaning of the relevant statutory provisions alone came up for consideration.;