1989 (4) TMI 77 - HC - Income Tax

Summary

Issues Involved:
1. Legislative Competency of Sections 44AC and 206C of the Income-tax Act, 1961.

Summary:

Legislative Competency:
The writ appeals challenge the legislative competency of sections 44AC and 206C of the Income-tax Act, 1961, introduced by the Finance Act, 1988. Section 44AC, effective from April 1, 1989, deems a percentage of the purchase price of timber as profits and gains of business, while section 206C, effective from June 1, 1988, mandates tax collection at source on such transactions.

Section 44AC:
Section 44AC provides that in the case of a buyer obtaining timber through auction or other modes, 15% of the purchase price shall be deemed as profits and gains of business chargeable to tax. This section aims to compute income on a presumptive basis to address issues in assessing income and recovering tax from timber traders who often do not maintain proper books of account.

Section 206C:
Section 206C mandates that sellers collect 10% of the amount as income-tax at the time of debiting the buyer's account or upon receipt of payment. This provision ensures tax collection at the source, simplifying the recovery process.

Constitutional Entry:
The constitutional entry under scrutiny is entry 82 of List I to the Seventh Schedule, which pertains to "Taxes on income other than agricultural income." The court emphasized that legislative entries define the scope of legislative competence and should be interpreted broadly.

Judicial Precedents:
The court referenced several judicial precedents, including Bhagwan Dass Jain v. Union of India [1981] 128 ITR 315 (SC), to support the notion that income can be calculated as a percentage of gross receipts. It was noted that the legislative power to tax includes the authority to deem certain amounts as income for practical and administrative purposes.

Conclusion:
The court concluded that sections 44AC and 206C are within the legislative competence of the Union. The provisions are designed to address practical difficulties in tax assessment and collection from timber traders. The legislative fiction of deeming a percentage of the purchase price as income is justified and does not exceed the legislative field assigned by entry 82 of List I. Consequently, the writ appeals were dismissed.