1989 (8) TMI 26 - HC - Income Tax

Summary

Issues Involved:
1. Legislative competence of Parliament to enact sections 44AC and 206C of the Income-tax Act.
2. Constitutionality and validity of sections 44AC, 206C, and 276BB of the Income-tax Act.
3. Alleged discrimination against country liquor contractors under sections 44AC and 206C.
4. Inclusion of excise duty in the purchase price for calculating presumptive income.
5. Harmonious construction of sections 44AC and 206C regarding the rate of income-tax collection.

Summary:

Legislative Competence:
The court examined whether Parliament had the authority to enact sections 44AC and 206C of the Income-tax Act. It was concluded that Parliament was fully competent to enact these sections, as they fall within the scope of entry 82 in List I of the Seventh Schedule to the Constitution, which authorizes laws related to income other than agricultural income. The court emphasized that entries in legislative lists should be given a wide interpretation and that sections 44AC and 206C are anti-evasion measures aimed at preventing tax evasion.

Constitutionality and Validity:
The court addressed the petitioners' arguments that sections 44AC and 206C violated articles 14 and 19(1)(g) of the Constitution. The court concurred with the Andhra Pradesh High Court's decision in A. Sanyasi Rao v. Government of Andhra Pradesh [1989] 178 ITR 31, which upheld the constitutionality of these sections. The court held that these sections, when read down to mean that they are adjuncts to sections 28 to 43C, do not suffer from any constitutional infirmity. The court also noted that section 276BB was not specifically challenged in the arguments.

Discrimination Against Country Liquor Contractors:
The petitioners argued that sections 44AC and 206C discriminated against country liquor contractors compared to contractors of Indian-made foreign liquor. The court rejected this contention, stating that country liquor and Indian-made foreign liquor are distinct goods with different characteristics, catering to different strata of society. Thus, the classification has a direct nexus with the objectives of regulating trade in intoxicants and earning revenue for the State.

Inclusion of Excise Duty:
The petitioners contended that excise duty paid by contractors should not be included in the purchase price for calculating presumptive income. The court rejected this argument, aligning with the reasoning in A. Sanyasi Rao's case, which held that excise duty is a component of the purchase price.

Harmonious Construction of Sections 44AC and 206C:
The petitioners argued that income-tax should be charged only on 40% of the purchase price, not the total purchase price. The court, following A. Sanyasi Rao's case, held that the distillery is obliged to charge 15% of the total purchase price as income-tax as a provisional collection.

Conclusion:
1. Parliament was competent to enact sections 44AC and 206C, and the tax levied under these sections is on income, not purchases.
2. Section 44AC, when read down as an adjunct to sections 28 to 43C and 206C, does not suffer from any constitutional infirmity.
3. The collection of tax at source under section 206C is related to the purchase price, not just the income component.
4. Distilleries, restrained by interim orders, cannot be held liable for not collecting income-tax during the interregnum. Country liquor contractors are liable to pay income-tax on purchases made during this period, which will be accounted for in the final assessment.

The writ petitions were disposed of with no order as to costs.