- (1.) THE challenge in this bunch of writ petitions is directed against the legality and constitutional validity of Sections 44ac, 206c and 276bb incorporated in the Income-tax Act, 1961 (hereinafter referred to as "the Act"), by the Finance Act, 1988. The petitioners, also impugn the directions (annexure P-1) issued by the Excise and Taxation Commissioners of the States of Punjab and Haryana directing the owners/managers of the distilleries situated within their respective States to treat 40 per cent. of the sale price of alcoholic liquor for human consumption (other than Indian made foreign liquor) (hereinafter, for brevity's sake, referred to as "country liquor") as profits and gains of the buyers (petitioners liquor contractors) from business and recovering income-tax at the rate of 15 per cent. of such profits and gains from the buyers with effect from June 1, 1988. For the purpose of calculating income-tax recoverable from the buyer, a seller shall add the excise duty paid by the purchaser to the State Government on behalf of the seller to the price charged or to be charged for such sale of country liquor.
(2.) THE pleadings in Civil Writ No. 3947 of 1989 shall furnish the factual matrix : The petitioners therein are engaged in the business of sale of liquor in the States of Punjab and Haryana. The Excise and Taxation Commissioner, Haryana (hereinafter referred to as "respondent No. 1"), auctioned among others, country liquor vends of Camp Area of Yamunanagar, Damra and Harmal, for the years 1989-90. The petitioners being the highest bidders were sold these vends. As per the terms and conditions and the prevalent practice, the liquor contractor who intends to purchase country liquor for sale at his vend is required to deposit excise duty payable in respect of the quota of the country liquor he seeks to purchase. On proof of this deposit of excise duty, the excise authority issues a permit to the liquor contractor to purchase country liquor from the distillery arid to transport and sell it at his vend. The distillery charges for the liquor sold by them are regulated by the Government and they include the price of the liquor and the expenses on bottling, labelling, etc.
(3.) PARLIAMENT passed the Finance Act, 1988, and it has, among others, introduced Sections 44ac, 206c and 276bb in the Income-tax Act. The provisions of Section 44ac have been enforced with effect from April 1, 1989. These sections, in so far as they are relevant for our purpose, read as under : "44ac. (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; (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'. Table Nature of goods Percentage S. N o. (2) (3) ( 1 ) Timber obtained under a forest Thirty-five per cent ( lease i ) Timber obtained by any mode Fifteen per cent ( other than under a forest lease. i i ) Any other forest produce not Thirty-five per cent. ( being timber. i i i ) (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 art amount which bears to the total expenses of the business carried on by the asses-see the same proportion 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. " "206c. (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 S. No. Nature of goods (1) (2) (i) Alcoholic liquor for human consumption (other than Indian-m foreign liquor) (ii) Timber obtained under a forest le (iii) Timber obtained by any mode oth under a forest lease (iv) Any other forest produce not bein timber 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 collection under Sub-section (1) shall be without prejudice to any other mode of recovery. (3) Any person collecting any amount under Sub-section (4) 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 collectable 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. " "276bb. If a person fails to pay to the credit of the Central Government, the tax collected by him as required under the provisions of Section 206c, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine. ";