1986 (4) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Validity of Section 44AB and Section 271B of the Income-tax Act.
2. Interpretation of Sections 44AB and 271B of the Income-tax Act.
3. Applicability of Section 44AB to commission agents.
4. Reasonableness of restrictions under Article 19(1)(g) of the Constitution.
5. Alleged inconsistency of Section 44AB with other provisions of the Income-tax Act.

Summary:

1. Validity of Section 44AB and Section 271B:
The petitioners challenged the validity of Section 44AB on the grounds of Articles 14 and 19(1)(g) of the Constitution. The court held that the provisions are designed to prevent tax evasion and facilitate tax administration. The court cited precedents like R. Abdul Quader and Co. v. STO, Mudiam Oil Co. v. ITO, and Vallabhdas Manjibhai Dholakia v. CIT to support the legislative competence under entry 82 of List I of Schedule VII to the Constitution. The court concluded that the provisions are neither arbitrary nor discriminatory and thus do not violate Article 14.

2. Interpretation of Sections 44AB and 271B:
The court noted that Section 44AB mandates audit for businesses with turnover exceeding Rs. 40 lakhs and professionals with receipts exceeding Rs. 10 lakhs. The court emphasized that the provisions are meant to check fraudulent practices and facilitate tax administration. The court also highlighted that the Income-tax Officer has discretion under Section 271B to impose penalties only if the failure to get accounts audited is without reasonable cause.

3. Applicability to Commission Agents:
The court examined whether Section 44AB applies to commission agents. It concluded that if a commission agent merely brings buyers and sellers together and earns a commission, they are not subject to audit under Section 44AB unless their professional receipts exceed Rs. 10 lakhs. However, if the agent sells goods on behalf of the principal and shows it as their own turnover, they are subject to audit. The court referred to Kandula Radhakrishna Rao v. Province of Madras to support this interpretation.

4. Reasonableness of Restrictions under Article 19(1)(g):
The petitioners argued that the provisions impose unreasonable restrictions on their business/profession. The court held that the restrictions are reasonable and aimed at preventing tax evasion. The court cited cases like Mohan Trading Co. v. Union of India and T. S. Nataraj v. Union of India to support this view.

5. Alleged Inconsistency with Other Provisions:
The petitioners contended that Section 44AB is inconsistent with other provisions like Section 139(2) and Section 142(2A). The court held that both provisions can be read harmoniously. The court emphasized that the phrase "without reasonable cause" in Section 271B provides sufficient discretion to the Income-tax Officer to avoid imposing penalties in justified cases. The court also noted that the audit requirement under Section 44AB is consistent with the requirement to file audited accounts under Section 139(9)(e).

Conclusion:
The court dismissed all the writ petitions, upholding the validity and applicability of Sections 44AB and 271B. The court directed that no penalty or interest would be charged if the petitioners filed their returns with the audit report within four months from the date of the order.