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TMI Blog1989 (8) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... contractors) from business and recovering income-tax at the rate of 15 per cent. of such profits and gains from the buyers with effect from June 1, 1988. For the purpose of calculating income-tax recoverable from the buyer, a seller shall add the excise duty paid by the purchaser to the State Government on behalf of the seller to the price charged or to be charged for such sale of country liquor. The pleadings in Civil Writ No. 3947 of 1989 shall furnish the factual matrix : The petitioners therein are engaged in the business of sale of liquor in the States of Punjab and Haryana. The Excise and Taxation Commissioner, Haryana (hereinafter referred to as "respondent No. 1"), auctioned, among others, country liquor vends of Camp Area of Yamunanagar, Damra and Harmal, for the years 1989-90. The petitioners being the highest bidders were sold these vends. As per the terms and conditions and the prevalent practice, the liquor contractor who intends to purchase country liquor for sale at his vend is required to deposit excise duty payable in respect of the quota of the country liquor he seeks to purchase. On proof of this deposit of excise duty, the excise authority issues a permit to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------------------------------------------------------------------------------------------- (i) Timber obtained under a forest lease. Thirty-five per cent. (ii) Timber obtained by any mode other Fifteen per cent. than under a forest lease. (iii) Any other forest produce not being Thirty-five per cent. timber. --------------------------------------------------------------------------------------------------------------------------------------------------- (2) For the removal of doubts, it is hereby declared that the provisions of sub-section (1) shall not apply to a buyer (other than a buyer who obtains any goods, from any seller which is a public sector company) in the further sale of any goods obtained under or in pursuance of the sale under sub-section (1). (3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportion as the turnover of such other busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the credit of the Central Government or as the Board directs. (4) Any amount collected in accordance with the provisions of this section and paid under sub-section (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable. (5) Every person collecting tax in accordance with the provisions of this section shall within ten days from the date of debit or receipt of the amount furnish to the buyer to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed. (5A) Every person collecting tax in accordance with the provisions of this section shall prepare half yearly returns for the period ending on 30th September and 31st March in each financial year, and deliver or cause to be delivered to the prescribed income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Haryana, the price of liquor is higher but the sale price is the same and the profits are less. In reality, the impugned provisions of the Act levy a purchase tax on the purchase value of liquor purchased by the liquor contractors. This is beyond the legislative competence of Parliament. The State Legislatures, because of entries 8 and 51 of List 11 of the Seventh Schedule of the Constitution, are alone competent to legislate on the subjects of sale, purchase of goods and of intoxicants. Entry 82 of List I of the Seventh Schedule to the Constitution empowers Parliament to frame laws in relation to taxes on income other than agricultural income. Constitution does not authorise Parliament to make laws for levy of income-tax on notional, deemed or presumptive incomes. The impugned provisions are violative of article 19(1)(g) of the Constitution as they impose an unreasonable restriction on the carrying on of trade and business by the petitioners. Income-tax is sought to be levied on the whole of the purchase price of the country liquor purchased by the liquor contractors though this purchase price cannot logically be termed as income of the liquor contractor, who has paid the purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the same lines. Initially, in most of the writ petitions, the petitioners had not impleaded the distilleries as respondents, but later on in many cases, the distilleries had been impleaded. At the motion stage, it was argued on behalf of the petitioners that the vires of the impugned sections had been challenged in various High Courts and the operation of the orders directing the distilleries to charge income-tax from the liquor contractors had been stayed. This point was conceded by learned counsel appearing for the Revenue and he had submitted that the Union of India was moving the final court for the transfer of all these cases for decision by it and for that reason, the written statements had also not been filed in these writ petitions. So, in view of the facts and circumstances, the operation of the orders of the Excise and Taxation Commissioners were stayed. In the meantime, various distilleries filed applications for vacation/modification of the stay orders passed by the Motion Benches on the plea that the applicants (the distilleries) were obliged by the impugned provisions to charge/collect income-tax from the liquor contractors on the purchase price and to deposit the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. It is well-established that "entries in the Lists are not powers but are only fields of legislation and that widest import and significance must be given to the language used by Parliament in the various entries." Entries in these lists not only authorise the imposition of tax but also enactment of laws which prevent the evasion of such taxes, and other incidental and consequential matters. The conclusions in A. Sanyasi Rao's case are illuminating (headnote) : "Entries in legislative lists in the Constitution must be given a wide interpretation. The Income-tax Act defines the expression 'income' in clause (24) of section 2, but that definition cannot be read back into entry 82 of List I of the Seventh Schedule to the Constitution. Even the said definition is an inclusive one and has been expanding from time to time. Several items have been brought within the definition from time to time by various amending Acts. The said definition cannot, therefore, be read as exhaustive of the meaning of the expression 'income' occurring in entry 82 of List I in the Seventh Schedule. This, of course, does not mean that an amount which can by no stretch of imagination be called 'income' can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a lot of revenue and the same required to be plugged, the remedy therefor should be proportionate to the evil sought to be remedied ; it should be reasonable. It cannot be said that every country liquor contractor was evading income-tax or was running the business in benami names and had set up fictitious firms/associations. Still there are honest liquor contractors in the country. There is no basis for assessing the profits and gains of every liquor licensee at the rate of 40 per cent. of the purchase price. In the very nature of things, there may be many persons who may actually earn less profits than specified or may incur losses. In the bill, the profits and gains were proposed to be assessed at the rate of 60 per cent. of the purchase price. It has not been explained why it was reduced to 40 per cent. in the Act. Because of these measures, section 44AC offends article 14 of the Constitution. It also imposes unreasonable restrictions upon the fundamental right guaranteed by article 19(1)(g). However, in social interest, instead of striking down section 44AC, it was thought better to read it down to make it consistent with the guarantees in articles 14 and 19(1)(g) and to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculty. If the books are not properly maintained, or are suspicious or unacceptable otherwise, they can always be rejected and a best judgment assessment made. The level of profits in such trade in a given area, region or State can always be kept in mind while making a best judgment assessment and/or while determining the genuineness of accounts. The existence of some honest traders even in the specified goods cannot be ruled out. It was not explained on what basis profits and gains of business in the specified goods were assessed at 60 per cent. uniformly at the stage of the Finance Bill nor was it clear on what basis the percentages were altered to the several figures in section 44AC. The imposition is disproportionate and offends against article 14. It is also an unreasonable restriction upon the fundamental right guaranteed by article 19(1)(g). In such a situation, the court has the option to strike down section 44AC or to read it down to make it consistent with the guarantees in articles 14 and 19(1)(g). In view of the overall objects underlying the provisions and language in sub-section (4) of section 206C, it would serve public interest and further the intendment of Parliame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be extremely difficult by the Department. Therefore, sections 44AC and 206C provide for an easy method of assessment of income and recovery of tax. With respect, we prefer to follow the view taken in A. Sanyasi Rao's case [1989] 178 ITR 31 (AP) to the ratio of T. K. Aboobacker's case [1989] 177 ITR 358 (Ker). We hold that, when read down in the manner suggested in A. Sanyasi Rao's case [1989] 178 ITR 31 (AP), sections 44AC and 206C are valid and constitutional. It may be mentioned here that no argument was addressed regarding the constitutional validity of section 276BB of the Act or the infraction of articles 240 and 258 of the Constitution. In fairness to learned counsel for the petitioners, it may be mentioned that they had argued that country liquor contractors had been subjected to hostile and invidious discrimination by making them subject to the provisions of sections 44AC and 206C and leaving out the contractors of Indian made foreign liquor. Both sets of contractors are engaged in the business of sale of liquor. There cannot be any differentiation on the ground that, in one case, the contractors sell country liquor and in the other case, they sell Indian-made foreign liq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to charge a sum equal to 15 per cent. of the purchase price as income-tax as a provisional collection. We conclude that: (1) Parliament was competent to enact sections 44AC and 206C. The tax levied under these sections is tax on income and not on purchases. (2) Section 44AC read down is an adjunct to sections 28 to 43C and 206C. Even country liquor contractors have to be assessed in relation to their business in country liquor in accordance with the provisions of sections 28 to 43C. Thus read, section 44AC does not suffer from any constitutional infirmity. (3) The collection of tax at source provided by section 206C is relatable to the purchase price and not to the income component thereof. Due to the interim orders passed by this court, the distilleries in the two States of Punjab and Haryana and the Union Territory of Chandigarh had been restrained from charging and collecting income-tax under sections 44AC and 206C though they were required by law to do so. Even uptill today, they have not been charging income-tax at source. Since the distilleries were restrained by this court from performing their statutory duties, they cannot be held liable civilly or criminally for not f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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