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TMI Blog2000 (3) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... alty for infraction of section 269SS. Section 269SS penalises the borrower for obtaining cash loan of Rs. 20,000 or more. The appellant had borrowed the following sums of money from its directors during the accounting year ending on March 31, 1991. Rs. Sri K.R. Somashekar 7.40 lakhs Sri S. Rajashekar 4.70 lakhs Sri S. Chandrashekar 40,000. The amounts were taken in cash. According to the appellant, the sums were borrowed to meet urgent needs of business. As the sums were borrowed in cash, the first respondent initiated proceedings under section 271D read with section 269SS and levied penalty in the sum of Rs. 12,50,000 equal to the amount borrowed overruling the detailed explanation filed by the appellant. Aggrieved by the levy, the appellant filed the writ petition under article 226 of the Constitution of India challenging the vires of section 271D and section 269SS and also contested that on the facts and in the circumstances of the case no penalty was leviable. Even if the penalty was leviable the amount specified was only the maximum amount and depending upon the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the penalty can be as large a multiple, as could be conceived of such money the provisions could not stand the scrutiny of article 14 of the Constitution of India. On the merits it was contended that even if the penalty was leviable the amount specified was only the maximum amount. It was not obligatory to levy the maximum amount of penalty prescribed under the Act. It was permissible to levy a smaller amount of penalty also depending upon the circumstances of the case. As in the present case the genuineness of the loans was not questioned, the assessing authority erred in levying the maximum amount of penalty. A token levy of penalty would have satisfied the majesty of law. The learned single judge did not accept either of the submissions. It was held that section 269SS was neither arbitrary nor unreasonable. There was no hostile discrimination between the borrower and the lender. The lender and the borrower constituted different classes. It was held that section 269SS was not beyond the legislative competence of Parliament or being in excess of the authority given to it to enact laws under entry 82 of the Union List in the Seventh Schedule. After upholding the vires of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93] 3 SCC 259, 266, every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. It does not lose its authority merely because it was badly argued, inadequately considered and fallaciously reasoned. It was observed (page 276 of 83 FJR) : "The contention of Dr. Anand Prakash that since this appeal was deleted from the Constitution Bench to be dealt with separately, the finding of the Constitution Bench deprived the respondent of putting forth the contention based on clause 13 of the certified standing order to support impugned action and the respondent is entitled to canvass afresh the correctness of the view of the Constitution Bench is devoid of force. It is settled law that an authoritative law laid after considering all the relevant provisions and the previous precedents is no longer open to be recanvassed on new grounds or reasons that may be put forth in its support unless the court deemed it appropriate to refer to a larger Bench in the larger public interest to advance the cause of justice. The Constitution Bench in fact went into the self same question vis-a-vis the right of the employer to fall back upon the relevant provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e class consisting of lenders, the class consisting of borrowers can be said to be in a position to evade tax by adopting the devices, for curbing which provisions have been made in Chapter XX-B by inserting section 269SS and other sections. In our opinion, the classification made by the Legislature is based on intelligible differentia and for that reason cannot be said to be discriminatory or in any manner violative of article 14 of the Constitution. This classification has obviously a rational nexus sought to be achieved by the provisions. Even learned counsel for the petitioner could not seriously challenge that the prohibition contained in section 269SS, if it is otherwise valid, is not likely to achieve the object for which the said provision is made. If the mode of taking or extracting loans or deposits is checked in this manner, it would certainly, to some extent, achieve the object of evasion of tax because the transactions of loans and deposits which are not genuine and which formerly could be passed off as genuine would now be less as a result of the prohibition contained in the section. The restriction which has been imposed by section 269SS cannot be said to be unreas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxpayers as representing the loans taken from or deposit made by various persons which was being explained by getting confirmatory letters from such persons in support of such explanation thought it necessary to provide the machinery prescribing a mode in which a loan can be taken. The classification made by the Legislature is based on intelligible differentia and for that reason cannot be said to be discriminatory or in any manner violative of article 14 of the Constitution of India. Accordingly, it is held that section 269SS does not suffer from the vice of hostile discrimination. Counsel for the appellant argued that under entry 82 of the Union List which reads : "Taxes on income other than agricultural income" Parliament can pass the laws relating to taxing of income only and as the sums borrowed were not the income of the borrower ; Parliament did not have the jurisdiction to provide for levying of penalty on a sum which was not treated to be income. Reliance was placed on the decision of the Supreme Court in Navinchandra Mafatlal v. CIT [1954] 26 ITR 758, wherein it was held that the natural meaning of income embraces any profit or gain which is actually received. Relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rry them. We do not see any justification for introducing such limitations in the said entry. It is hardly necessary to emphasise that entries in three lists in the Seventh Schedule which confer legislative competence on the respective Legislatures to deal with the topics covered by them must receive the widest possible interpretation ; and so it would be unreasonable to read in the entry any limitation of the kind which Mr. Pathak's argument seems to postulate. Besides, it is well settled that when a power is conferred on the Legislature to levy a tax, that power itself must be widely construed ; it must include the power to impose a tax and select the articles or commodities for the exercise of such power; it must likewise include the power to fix the rate and prescribe the machinery for the recovery of the tax. This power also gives jurisdiction to the Legislature to make such provisions as, in its opinion, would be necessary to prevent the evasion of the tax. In imposing taxes, the Legislature can also appoint authorities for collecting taxes and may prescribe the procedure for determining the amount of taxes payable by any individual; all these provisions are subsidiary to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was that it was beyond the legislative competence of Parliament under entry 82 of the Union List to enact sections 44AC and 206C. The object in enacting sections 44AC and 206C of the Act is to enable the Revenue to collect the legitimate dues from the persons carrying on particular trades in view of the peculiar difficulties experienced in the past. In order to prevent evasion of tax due on such income sections 44AC and 206C were enacted so as to facilitate the collection of tax on the income which is bound to arise or accrue at the very inception itself or at an anterior stage. The Supreme Court upheld the constitutional validity of section 44AC read with section 206C. It was held that the basis of the charge relating to income-tax is laid down in sections 4 to 9 and section 44AC and section 206C were only machinery provisions and not charging sections. The authority to impose tax under entry 82 would also include the authorisation to enact a provision which prevents the evasion of tax. To appreciate the background under which section 269SS was enacted it would be useful to refer to the speech made, by the Finance Minister on the Finance Bill of 1984. The Finance Minister in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Banking Regulation Act, 1949. The expression 'loan or deposit', for the purposes of the proposed provision, would mean loan or deposit of money." From the perusal of the speech of the Finance Minister it is clear that the object of section 269SS is to curb the evasion of tax. On the experience gained in the course of searches carried on by the Income-tax Department that unaccounted cash in the books of account was sought to be explained by the taxpayers as loan taken or deposit made by some persons. They were also able to take confirmatory letters from them. With a view to circumventing this device, which enables taxpayers to explain their unaccounted cash or unaccounted deposits, the provision was added debarring persons from taking or accepting, after 30th June, 1984, from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft if the amount of such deposit or aggregate amount of loan is Rs, 10,000 or more (which was later increased to Rs. 20,000). Contravention of section 269SS would lead to levy of penalty under section 271D or imprisonment for a term which could extend to two years. The provision regarding imprisonment has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he manner prescribed in section 269SS was not practicable or would have caused genuine difficulty in taking the loan/deposit. If he is able to show that, then the penalty may not be levied. The Supreme Court while dealing with similar arguments in Attar Singh Gurmukh Singh's case [1991] 191 ITR 667 held : "In our opinion, there is little merit in this contention. Section 40A(3) must not be read in isolation or to the exclusion of rule 6DD. The section must be read along with the rule. If read together, it will be clear that the provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. Section 40A(3) only empowers the Assessing Officer to disallow the deduction claimed as expenditure in respect of which payment is not made by crossed cheque or crossed bank draft. The payment by crossed cheque or crossed bank draft is insisted on to enable the assessing authority to ascertain whether the payment was genuine or whether it was out of the income from undisclosed sources. The terms of section 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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