1990 (3) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Competence of Parliament to enact sections 44AC and 206C of the Income-tax Act, 1961.
2. Arbitrariness and violation of Article 19(1)(g).
3. Principles of natural justice.
4. Stage for imposition of tax.
5. Basis and extent of calculations.

Summary:

Competence of Parliament to Enact Sections 44AC and 206C:
The petitioners challenged the validity of sections 44AC and 206C of the Income-tax Act, 1961, asserting that these amendments were beyond the competence of Parliament. The amendments were introduced by the Finance Act, 1988, effective from April 1, 1989, and June 1, 1988, respectively. These provisions were aimed at counteracting tax evasion by liquor contractors, scrap dealers, and dealers in forest products. The Kerala High Court in P. Kunhammed Kutty Haji v. Union of India [1989] 176 ITR 481 and T. K. A Aboobacker v. Union of India [1989] 177 ITR 358 upheld these provisions, as did the Andhra Pradesh High Court in A. Sanyasi Rao v. Government of Andhra Pradesh [1989] 178 ITR 31 and the Punjab and Haryana High Court in Sat Pal and Co. v. Excise and Taxation Commissioner [1990] 185 ITR 375.

Arbitrariness and Violation of Article 19(1)(g):
The petitioners argued that the provisions were arbitrary and violated their right to practice any profession or to carry on any occupation, trade, or business u/s Article 19(1)(g) of the Constitution. They contended that the amendments imposed an undue burden and were not justified. The court noted that the amendments aimed to address difficulties in assessing incomes from certain businesses and to combat large-scale tax evasion.

Principles of Natural Justice:
The petitioners claimed that the provisions violated the principles of natural justice. However, the court observed that the amendments were introduced to address specific issues related to tax evasion and were not arbitrary or unjust.

Stage for Imposition of Tax:
The petitioners questioned the stage at which the tax was imposed, arguing that it was premature and without proper assessment. The court noted that the provisions aimed to ensure tax collection at the source to prevent evasion.

Basis and Extent of Calculations:
The petitioners challenged the basis and extent of the calculations for tax imposition. They argued that the calculations were excessive and did not consider their actual income. The court examined the provisions and noted that the amendments were based on the experience of the tax department and aimed to ensure a fair assessment of income.

Application of the Direct Tax Laws (Amendment) Act, 1989:
The petitioners, who were L-13 country liquor licensees, argued that they were covered by the proviso to section 44AC, introduced by the Direct Tax Laws (Amendment) Act, 1989. This proviso exempted buyers who did not obtain goods by way of auction and whose sale price was fixed by or under any State Act. The court agreed with the petitioners, noting that they obtained licenses at a fixed fee and the sale prices were prescribed by the State Government. The court held that the proviso applied to the petitioners and restrained the respondents from demanding tax at the purchase point.

Conclusion:
The court concluded that the petitioners, being L-13 licensees, were covered by the proviso to section 44AC and were not subject to the provisions of section 206C and other parts of section 44AC(1). The demand for tax at the purchase point was deemed without authority of law, and the respondents were restrained from enforcing it. The parties were directed to bear their own costs.