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TMI Blog1986 (4) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foregoing considerations the Bill seeks to make a new provision in the Income-tax Act making into 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 any 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded. 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 the matters incidental to such shall come within the the domain of this entry in order to effectuate the purpose and intend contained in the entry. The basic idea is to tax the income and in order to check the evasion of the 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 transaction 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 Officers for carrying out the verification at the time of assessing the assessee's return and same may be utilised for more important investigational aspect of the case. Hence in this background it has been made obligatory for the assessee whose total sales, turnover or gross receipts, as the case may be, in business exceeds Rs. 40 lakhs in previous year and his professional receipts in any profession, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution. 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 the 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 Vallabhadas Manjibhai Dholakia v. B.A. Shariff 1975 Tax LR 725 (Guj), it has been held as under: "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 levelle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one by a chartered accountant, this is discriminatory because persons similarly situated are treated dissimilarly. In this connection learned counsel for the petitioner has placed reliance on the cases of State of Kerala v. Haji K. Haji K. Kutty Naha AIR 1969 SC 378, Income-tax Officer, Assam v. Lawrence Singh Ingty AIR 1968 SC 658, New Manek Chowk Spg. and Wvg. Mills Co. Ltd. v. Municipal Corporation of City of Ahmedabad AIR 1967 SC 1801 and R.B. Basu v. P.K. Mukherji AIR 1957 Cal 449. Section 288 reads as under: "288. Appearance by authorised representative.-(1) Any assessee who is entitled or required to attend before any income-tax authority or the Appellate Tribunal in connection with any proceeding under this Act otherwise than when required under section 131 to attend personally for examination on oath or affirmation, may, subject to the other provisions of this section, attend by an authorised representative. (2) For the purposes of this section, 'authorised representative' means a a person authorised by the assessee in writing to appear on his behalf, being(i) a person related to the assessee in any manner, or a person regularly employed by the assessee; or (ii) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l relation to the object sought to be achieved by the statute in question. The classification may be founded on different bases, namely, geographical, or according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. It is also well-established by the decisions of the Supreme Court that article 14 condemns discrimination not only by a substantive law but also by a law of procedure. The decisions further establish: (a) that a law may be constitutional even though it relates to a single individual if, on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself; (b) that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles; (c) that it must be presumed that the legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience and that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike the present one that of a chartered accountant then such classification cannot be said to be violative of article 14 of the Constitution. In this connection reference may be made to the case of Air India v. Nergesh Meerza AIR 1981 SC 1829 wherein it has been held as under: "Thus, from a detailed analysis and close examination of the cases of this Court starting from 1952 till today, the following propositions emerge: (1) In considering the fundamental right of equality of opportunity a technical, pedantic or doctrinaire approach should not be made and the doctrine should not be invoked even if different scales of pay, service terms, leave, etc., are introduced in different or dissimilar posts. Thus, where the class or categories of service are essentially different in purport and spirit, article 14 cannot be attracted. (2) Article 14 forbids hostile discrimination but not reasonable classification. Thus, where persons belonging to a particular class in view of their special attributes, qualities, mode of recruitment and the like, are differently treated in public interest to advance and boost members belonging to backward classes, such a classification would not amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion may itself in some cases operate as denial of equality." Thus, this case is wholly distinguishable that floor area of building was only taken as a basis for taxation irrespective of other consideration, whereas objects, persons or transactions essentially dissimilar were treated by imposing a uniform tax. But this case hardly provide any analogy so far as the present case is concerned. Here 7 persons are eligible to appear and represent the assessee before the Income-tax Officer, but only audit report is admissible by a competent person and for that accountant alone has been recognised. This is because of the professional reasons and the particular expertise, which is required in a matter of auditing accounts. The classification has been made on the basis of occupation of particular person. Thus, such a classification cannot be said to be invidious classification so as to be violative of article 14 of the Constitution. Similar is the position in the case of New Manek Chowk Spg. and Wvg. Co. Ltd. v. Municipal Corporation of the City of Ahmedabad AIR 1967 SC 1801, wherein their Lordships of the Supreme Court held that the flat rate method according to floor area adopted for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Parliament looking to the conditions obtaining before them. The legislature is the best judge to lay down the limit because the evil which is being sought to be remedied by this enactment is the evasion of tax and the legislature in its wisdom has thought it proper that the persons whose turnover is higher like group of Rs. 40 lacs and Rs. 10 lacs such persons should be put to this auditing then such classification cannot be said to be discriminatory so as to be violative of article 14 of the Constitution of India. In this connection the learned counsel for the respondent has invited my attention to the case of Murthy Match Works v. Assistant Collector of Central Excise AIR 1974 SC 497. In this case Krishna Iyer, J., observed as under: "Bare equality of treatment regardless of the inequality of realities is neither justice nor homage to the constitutional principle. Another proposition which is equally settled is that merely because there is room for classification it does not follow that legislation without classification is always unconstitutional. The court cannot strike down a law because it has not made the classification which commends to the court as proper. Nor can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to check the evasion of the tax and as such cannot render the provision violative of article 19(1)(g) of the Constitution. The learned counsel for the respondent in this connection has invited my attention to the cases of Mohan Trading Co. v. Union of India [1985] 156 ITR 134 (MP) and T.S. Nataraj v. Union of India [1985] 155 ITR 81 (Kar). On the basis of these authorities it has been argued that sections 44AB and 271B are not violative of article 19(1)(g) of the Constitution. I uphold the submission of the learned counsel for the respondent and find there is no merit in the contention of the learned counsel fur the petitioner. The next limb of the argument of the learned counsel for the petitioner is that the present section is unworkable because it is inconsistent with the various other provisions of the Act. The learned counsel submits that by virtue of section 44AB, no discretion has been left with the Income-tax Officer and that if for reason beyond the control audit report could not be submitted within the specified date then he will be subject to the penalty as contained in section 271B of the Income-tax Act, whereas under section 139(2) discretion has been given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1956 (1 of 1956), also the report under that section." It has been submitted that where the accounts of the assessee have been audited the return has to be accompanied by copies of the audited profit and loss account and balance sheet. Thus, the learned counsel submitted that where audited accounts are there and the copies of that audit has to be accompanied with the return under section 139(9)(e) of the Income-tax Act and in case he does not file then too he can be subjected to penalty except a time has been allowed by the assessing authority. Thus, in this case also under section 139(9)(e) audit report has to be filed otherwise the return will be improper. He emphasised that the filing of the audit report under section 139(9)(e) is also a must. Thus, he submits that both the provisions can be read consistently. I think the submission of the learned counsel is correct as both the provisions contained under sections 139(9)(e) and 44AB and section 271-B can be harmoniously read and the expression "without reasonable cause" provides a sufficient insulation to the workability of section 44AB. In this connection he has invited my attention to the principles of Statutory Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evasion of tax, particular class of assessee has been made subject to audit and failure has been penalised under section 271B. This is for the legislature to lay down a rational classification that which class of persons shall be subject to this audit. Looking to the facts and circumstances obtaining before the Parliament, Parliament in its wisdom thought it proper to lay down the criteria of 40 lacs and 10 lacs then such criteria cannot be said to be discriminatory nor it can be said to be harsh. It is already mentioned above that the person who get their accounts audited under section 139(9) they will have to file return with the copies of the balance sheet and audit report otherwise it will be incomplete return and in case it is incomplete return then other consequences shall automatically follow. Therefore the audit has been made compulsory for the particular class of persons under section 44AB -then it cannot be said to be harsh or unworkable. Thus, I do not find any merit in this submission of the learned counsel for the petitioner and it is rejected. The learned counsel further submitted that section 142(2A) gives a power to the Income-tax Officer, if looking to the compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de necessary. Thus, both the provisions are consistent and the submission of the learned counsel is without any basis and is rejected. The learned counsel for the petitioner further submitted that the proviso to section 44AB trenches upon the provisions of the Companies Act and the other provisions of the Co-operative Societies Act, etc., where different periods for auditing has been provided. I am afraid this submission of the learned counsel is without any basis. So far as tax purpose is concerned the provision of the Income-tax Act will be applicable and the petitioner-assessee will have to get its accounts audited in terms of the provisions of the Income-tax Act. The provisions of the Companies Act cannot override the provisions of the Income-tax Act. Then the learned counsel submitted that the submission of audit report will amount to abdication of the discretion exercised by the Income-tax Officer to the chartered accountant. This submission of the learned counsel is without any basis. The discretion of the Income-tax Officer will not be abdicated simply because the assessee is required to submit audit report rather on the contrary it will be more useful and it will assis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eviously under section 142(2A) it was left with the discretion of the Income-tax Officer that if he thought it proper looking to the complexity of the accounts and in the interest of the revenue he can direct the assessee to get his accounts audited with previous permission of Commissioner. But that dormant provision has been made explicit by introducing section 44AB with the condition that persons whose turnover, sale or gross receipts exceed 40 lacs or his professional income's gross receipts exceed 10 lacs then he will have to get his accounts audited and he will have to file an audit report, with the return for such of the previous year or years relates to the assessment year within a period of 4 months from the end of the previous year or whereas more than one previous year from the end of the previous year which expired last before the commencement of the year whichever is later. Thus, the assessee will have to get his accounts audited. Now the question in relation to the petitioner who happens to be a commission agent whether he is required to get his accounts audited or not. Though it is essentially a question of fact, however, since the interpretation of the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover then he will have to be subjected to the requirements of audit. In this connection learned counsel for the respondent has invited my attention to the case of Kandula Radhakrishan Rao v. Province of Madras represented by Collector of West Godawari, Eluru [1952] 3 STC 121 (Mad.); AIR 1952 Mad. 718, a Full Bench decision, wherein while dealing with the Madras General Sales Tax Act, the working of the commission agent has been dealt at length. In this case the learned counsel has invited my attention to para 7, which reads as under: "7. The next question and by far the more important one is assuming that the plaintiffs have violated the conditions of the licences and therefore were not entitled to exemption under section 8 of the Act whether they would be liable to the tax as dealers. This question appears to us to be a mixed question of fact and of law and not a mere question of law. It is therefore necessary to ascertain the nature of the business transacted by the plaintiffs as commission agents. It was indeed common ground and simply supported by the evidence that the plaintiffs were acting as agents for several seller-principals who entrusted them with goods for sale at sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a small commission or brokerage from both of them. The learned District judge described the situation thus: "An agent who merely brings a buyer and seller together cannot be said to buy or sell his goods in his own behalf, any more than a marriage broker who brings the parties together can be said to be a party to the marriage." The facts in Public Prosecutor v. Narasimha Reddy [1947] 1 STC 167 (Mad.); [1947] 2 MLJ 220 were also similar to the facts in Government of Madras v. Veerabhadrappa [1950] 1 STC 245 (Mad.); ILR (1951) Mad. 257. Chandrasekhara Aiyar, J., referred to the accused in the case as having acted as a broker or commission agent who brought the seller and the buyer together. He pointed out that the word "turnover" as defined was not appropriate to what is done by an agent "in the way of bringing together a buyer and a seller for brokerage or a commission".'" Thus, it is clear that a person working as commission agent only brings two parties to marriage and charges his labour for bringing them together then that cannot amount to his sale, turnover, or receipts. But if by some other evidence it could be shown that the goods has remained with him and it is he wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of principal and agent or vendee and vendor. As already mentioned above that it will depend on the facts whether commission agent has sold the goods for his brokerage or as seller. Thus, this case cannot provide any help to the learned counsel for the petitioner. In the case of Bhopal Sugar Industries Ltd. v. D.P. Dube [1963] 14 STC 406 (SC) the questions turn on the fact whether transaction amounted to sale or not. In the case of C.A. Akhtar Company v. State of Tamil Nadu [1981] 47 STC 62 (Mad.), here also question was raised that whether there was privity of contract between principal and buyer or not. In this case one thing is significant that the case of Kandula Radhakrishan Rao [1952] 3 STC 121 (Mad.); AIR 1952 Mad 718, a Full Bench decision, was not placed for consideration before the Division Bench. In the case of Commissioner of Income-tax, West Bengal v. Tollygunge Club Ltd. [1977] 107 ITR 776 (SC) where the question was regarding surcharge. It was held that the surcharge was not charged on the price of admission, it was made payment for specific purpose of giving charity. In the case of New Nagpur Copra Industries v. State of Maharashtra [1985] 60 STC 380 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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