A.K.Mathur, J. - (1.) IN all this batch of writ petitions, a common question of law and fact has been raised. Therefore, they are disposed of by a single order.
(2.) IN these writ petitions, principal submissions have been made, one regarding the validity of Section 44AB and Section 271B of the INcome-tax Act and second, regarding interpretation of Sections 44AB and 271B of the INcome-tax Act. Sections 44AB and 271B were introduced by the Finance Act of 1984, which read as under : "44AB. Every person,-- (a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year or years relevant to the assessment year commencing on the 1st day of April, 1985, or any subsequent assessment year; or (b) carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any previous year or years relevant to the assessment year commencing on the 1st day of April, 1985, or any subsequent assessment year, get his accounts of such previous year or years audited by an accountant before the specified date and obtain before that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed: Provided that in a case where such person is required by or under any other law to get his accounts audited by an accountant, it shall be sufficient compliance with the provisions of this Section if such person gets the accounts of such business or profession audited under such law before the specified date and obtains before that date the report of the audit as required under such other law and a further report in the form prescribed under this section. Explanation.--For the purposes of this section,-- (i) 'accountant' shall have the same meaning as in the Explanation below Sub-section (2) of Section 288 ; (ii) 'specified date', in relation to the accounts of the previous year or years relevant to an assessment year, means the date of the expiry of four months from the end of the previous year or, where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or the 30th day of June of the assessment year, whichever is later. 271B. If any person fails, without reasonable cause, to get his accounts audited in respect of any previous year or years relevant to an assessment year or obtain a report of such audit as required under Section 44AB, the INcome-tax Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent. of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees, whichever is less." Learned counsel for the petitioner has challenged the validity of Section 44AB on the anvil of articles 14 and 19(1)(g) of the Constitution and other facets have also been raised in order to show that Section 44AB is in contravention of the other provisions of the Income-tax Act and, therefore, they are not workable. Before we examine the various facets which learned counsel for the petitioner has submitted for my consideration, it will be necessary to have a look into the background in which the present sections have been incorporated in the Income-tax Act, by the Finance Act of 1984. The Statement of Objects and Reasons reads as under ([1984] 146 ITR (Statutes) 161 and 162): "Accounts maintained by companies are required to be audited under the Companies Act, 1956. Accounts maintained by co-operative societies are also required to be audited under the Co-operative Societies Act, 1912. There is, however, no obligation on other categories of taxpayers to get their accounts audited. A proper audit for tax purposes would ensure that the books of account and other records are properly maintained and that they faithfully reflect the income of the taxpayer and claims for deductions are correctly made by him. Such audit would also help in checking fraudulent practices. It can also facilitate the administration of tax laws by a proper presentation of the accounts before the tax authorities and considerably save the time of assessing officers in carrying out routine verifications, like checking correctness of totals and verifying whether purchases and sales are properly vouched or not. The time of the assessing officers thus saved could be utilised for attending to more important investigational aspects of a case. Having regard to the foregoing considerations, the Bill seeks to make a new provision in the Income-tax Act making it obligatory for a person carrying on business to get his accounts audited before the 'specified date' by an 'accountant' if the total sales, turnover or gross receipts in business for the accounting year or years relevant to the assessment year 1985-86 or any subsequent assessment year exceed or exceeds forty lakh rupees (corrected by authors in the light of the law as it stands). A person carrying on profession will also have to get his accounts audited before the 'specified date', if his gross receipts in profession for an accounting year or years relevant to any of the aforesaid assessment years exceed ten lakh rupees. The proposed new provision also casts an obligation on such persons to obtain before the 'specified date' a report of the audit in the prescribed form duly signed and verified by the 'accountant' setting forth such particulars as may be prescribed by rules made in this behalf by the Central Board of Direct Taxes. In cases where accounts are required to be audited by or under any other law (as in the case of companies and co-operative societies), it will suffice if the accounts are audited under such other law before the 'specified date' and the assessee obtains before the said date the report of the audit as required under such other law, and also a report of audit in the form to be prescribed by the Central Board of Direct Taxes. For the purposes of the proposed provision, the term 'accountant' will have the same meaning as in the Explanation below Sub-section (2) of Section 288 of the Income-tax Act. The expression 'specified date', in relation to the accounts of any accounting year or years relevant to any assessment year, would mean the date of the expiry of four months from the end of the accounting year or, where the assessee has more than one" accounting year, from the end of the accounting year which expired last before the commencement of that assessment year or the 30th June of that assessment year, whichever is later. If any person fails, without reasonable cause, to get his accounts audited in respect of any accounting year or years relevant to an assessment year or to obtain a report of such audit as required under the aforesaid provision, the Income-tax Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent. of the total sales, turnover or gross receipts, as the case may be, in the business or of the gross receipts in the profession, in such accounting year or years, subject to a maximum of one lakh rupees. The proposed provision will take effect from 1st April, 1985, and will, accordingly, apply in relation to the assessment year 1985-86 and subsequent years." The Constitution entry which covers this subject is contained in the Seventh Schedule, List I, at item No. 82 which reads as under : " 82. Taxes on income other than agricultural income." In this background, learned counsel for the petitioner submitted that in fact what is taxed is the income, and thus the basis of this provision, i.e., sale or gross receipts in a particular year of assessment is foreign to the Income-tax Act. According to entry 82, tax will be levied on the total income of the assessee and not with reference to his turnover or sale, etc. Learned counsel submits that Section 44AB has exceeded the jurisdiction and thereby it is arbitrary, discriminatory and violative of article 14 of the Constitution of India. I am afraid this submission of learned counsel is not well-founded. It is true that what is taxable is the total income of the individual under entry 82 of the Central List of the Seventh Schedule attached to the Constitution but all matters incidental to it shall come within the domain of this entry in order to effectuate the purpose and intent contained in the entry. The basic idea is to tax the income and in order to check the evasion of income, the Legislature is competent to make such laws under this entry. Thus, a perusal of the objects and reasons would show that this provision has been enacted in order to check fraudulent transactions or evasion. It will also facilitate the administration of the tax law by proper presentation of accounts before the taxing authority and that will considerably save the time of the Income-tax Officer for carrying out verification at the time of assessing the assessee's return and the same may be utilised for more important investigational aspects of the case. Hence, in this back ground, it has been made obligatory for the assessee whose total sales, turnover or gross receipts, as the case may be, in business exceed Rs. 40 lakhs in the previous year or his professional receipts in any profession, if his gross receipts exceed Rs. 10 lakhs, then he will have to get his accounts audited. Thus, this provision is a very salutary provision for the purpose of making the taxing Act more effective. It will also save the time of the administrative machinery so as to focus its attention on other important matters. When the audited accounts are submitted to the Income-tax Officer, he will have an advantage of properly prepared accounts and after observing those accounts, he will be in a better position to assess the situation rather than do the whole exercise by himself. Needless to say that the job of a chartered accountant has been made more responsible and his expertise on the subject will be more useful so as to effectively bring evasion of tax to light. It may be a little harsh on the assessee but none the less looking to the economic feature in the country if the Legislature in its wisdom has laid down this rigorous standard in order to avoid evasion of tax, then no exception can be taken. In this connection, I would like to refer to the case of R. Abdul Quader and Co. v. STO [1964] 15 STC 403, wherein their Lordships of the Supreme Court observed as under (at page 407): "These incidental and ancillary powers have to be exercised in aid of the main topic of legislation, which in the present case, is a tax on sale or purchase of goods. All powers necessary for the levy and collection of the tax concerned and for seeing that the tax is not evaded are comprised within the ambit of the legislative entry as ancillary or incidental."
(3.) THUS, in view of the clear position of law as enunciated by their Lordships of the Supreme Court, there is no hesitation in saying that the present provision which has been incorporated is incidental and in order to check the evasion of tax. THUS, it cannot be said to exceed the legislative competence under entry 82 of List 1 of Schedule VII to the Constitution. Likewise, it cannot be said to be arbitrary so as to be violative of article 14 of the Constitution. In this connection, reference may be made to the case of Mudiam Oil Co. v. ITO [1973] 92 ITR 519 (AP), wherein it has been held as under (at page 528): "It was also contended that the impugned provisions are in excess of the powers conferred upon Parliament under entry 82 in List I of the Seventh Schedule to the Constitution. Entry 82 relates to 'taxes on income other than agricultural income'. According to the learned counsel, the impugned provisions result in taxing the gross receipts in respect of income in the guise of disallowing the expenditure. We are unable to agree with the learned counsel. The provisions are there, as already stated by us, to safeguard the revenues of the state. If there is evasion of tax on the income and if measures are taken to check evasion, it cannot be said that the measures taken are ultra vires or beyond the powers of the Legislature." In the case of Vallabhdas Manjibhai Dholakia v. CIT [1975] 98 ITR 403 (Guj), it has been held as under (at pages 421 and 422) : "The impugned provision is made on the basis of a well-known fact which is a matter of common knowledge and common report and all that it requires a building contractor to do is to furnish prescribed particulars within the stipulated time-limit on the pain of penalty with a view to detecting evasion of tax. Such a provision is clearly incidental or ancillary to the power to levy tax because the power to enact a provision for preventing evasion of tax is always an incidental power. In fact, the challenge levelled at the impugned provision on the ground of legislative incompetence has not even been pressed in the present case. In these circumstances, in our opinion, it could hardly be contended that the impugned provision being not incidental or ancillary to the main power to tax income which is conferred by the Act, it has no nexus with the statute in question." ;