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TMI Blog1974 (2) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... articulars relating to the contracts within one month of the making of the contracts under section 285A of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The petitioners, however, failed to furnish the requisite particulars accordingly. In the course of proceedings for assessment to income-tax for the assessment years 1965-66 to 1970-71 (in the case of the second petitioner) and assessment years 1968-69 to 1970-71 (in the case of the third petitioner), particulars relating to these various contracts were disclosed by the respective petitioners and assessment orders were passed in due course by the concerned Income-tax Officer after taking into account the income derived by the second and third petitioners out of the said contracts. On December 28, 1971, the Commissioner of Income-tax, Gujarat-III, the first respondent herein, issued notices under rule 121 of the Income-tax Rules, 1962, calling upon the second and third petitioners to show cause why penalty or fine should not be imposed upon them under section 285A of the Act for failure to furnish particulars relating to the above-menfioned contracts to the concerned Income-tax Officer within one month of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the material rules, read as under: " 120. Form for furnishing particulars by contractor.-The particulars required to be furnished under sub-section (1) of section 285A by a contractor shall be in Form No. 52. 121. Procedure for imposition of fine.-No order imposing a fine under sub-section (2) of section 285A shall be made unless the contractor has been given a reasonable opportunity of being heard." Form No. 52 requires the contractor to furnish the following main particulars : (1) full name and address of the person with whom the contract for the construction of a building or for the supply of goods and services in connection with the construction of a building is made, (ii) date of the contract, (iii) total value of the contract, (iv) place where the contract is to be executed, (v) date by which the contract has to be performed, (vi) location of the place where the building is to be constructed, the number of storeys to be constructed and the number of rooms in each storey and plinth area of the proposed building, and (vii) brief description of the goods or services to be supplied under the contract and the value thereof. On a combined reading of these provisions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer are "property" within the meaning of article 19(1)(f) and that a statutory provision which requires a contractor to furnish such particulars to a taxing authority under the threat of penalty would be per se violative of the fundamental right to hold property; (ii) such material particulars are also in the nature of a trade secret and a statutory provision which compels a contractor on the pain of penalty to divulge such vital information pertaining to his trade or business to a third party (including a taxing authority) must necessarily have the effect of impinging upon the fundamental right to carry on trade or business; (iii) the legislature, while enacting the impugned provision, proceeded on an unwarranted assumption that every contract for the construction of a building or for the supply of goods and services in connection therewith was necessarily the outcome of or resulted in evasion or avoidance of tax and on that unjustified premise it has enacted the impugned provision which encroaches upon the exercise of the fundamental rights guaranteed under article 19(1)(f),(g); (iv) even if the above-mentioned assumption made by the legislature is correct and justifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssibly have any proprietary right or interest in those particulars. However, even proceeding on the assumption that a contract is property and that all the material particulars relating to a contract are also property, it is still difficult to appreciate how any complaint could be legitimately made by a contractor against the impugned provision, for the said provision does not directly and as an inevitable consequence deprive the contractor of his right to hold such property. By requiring a contractor to disclose the relevant particulars to the Income-tax Officer, the impugned provision does not acquire or take possession of the contract or of its essential ingredients or contents. The contractor, even after furnishing the particulars, still retains possession thereof and can make such use of them as he likes. Even by parting with the so-called property in the shape of such particulars, the contractor does not lose it altogether. Furthermore, the income-tax department does not become a party to the contract nor can it claim any interest in the contract nor any benefit thereunder. The contractor still retains interest in the contract as well as in the material particulars which form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of building contractors nor does it put any other impediment in the way of the carrying on of such business. Even assuming without accepting that the information of the nature which a contractor is required to furnish under the impugned provision constitutes a trade secret, it is difficult to appreciate how by requiring a contractor to disclose such particulars to an Income-tax Officer, his right to carry on business is in any manner impeded or restricted. The information is not required to be communicated to a rival businessman nor to the State or any of its organs in its capacity as a competitor in that particular branch of trade or business. The information is required to be conveyed to a taxing authority, the end in view being to plug evasion of tax. In these circumstances, in our opinion, there is no room for contending that as a proximate effect or operation of the impugned provision there is any invasion of the fundamental right to carry on trade or business guaranteed by article 19(1)(g). The petition must really fail in view of the foregoing conclusions. We do not, however, propose to rest our decision only on the grounds aforementioned. We will also examine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax authorities within a short time. The impugned provision has been, therefore, enacted with a view to combating tax evasion with speed and in good time and ensuring that building contractors do not omit to furnish information or furnish incorrect or belated information with regard to the contracts undertaken by them. The first respondent has further stated that the time-limit of one month for disclosure of the particulars is prescribed so that the tax authorities might get timely information regarding investment of black money in immovable properties by the affluent sections of the community and effective steps could be taken by them to detect or plug the tax evasion. Apart from what has been stated in the affidavit of the first respondent, judicial notice can be taken of the wellknown fact that in our country there is considerable evasion of taxes in the higher income level group and that huge sums of unaccounted money find a safe outlet in the purchase or construction of immovable properties. The tax-evaded monies which are thus brought into circulation generate inflation and eat into the vitals of the economic life of the community. It is, therefore, in the interest of the comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contractor and as and when it is furnished, it would enable the Income-tax Officer to make proper inquiries in relation to the source of money with the aid of which the proposed construction is intended to be put up. The information so supplied would also enable the Income-tax Officer to acquaint himself with the nature and extent of the business carried on by the contractor himself and thus help to plug evasion of tax even at his end. It is true that the failure to furnish the particulars prescribed by the substantive part of the impugned provision is made a continuing offence and the defaulting contractor is made liable to suffer penalty. However, it cannot be overlooked that such offence is punishable only with fine and that the imposition of fine is not obligatory in each and every case of default. Furthermore, there is no minimum fine prescribed and there is a two-fold restriction on the maximum fine that could be levied, first, fine not exceeding rupees fifty only could be levied for every day during which the contravention continues and, secondly, the amount of total fine imposed cannot in any event exceed in the aggregate twenty-five per cent. of the value of the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax-dodger to book and that it was really not necessary to confer on the taxing authorities any additional powers, the exercise of which would inevitably result in curtailing a citizen's rights to carry on his trade or business or to hold and dispose of property. We must confess that we have been unable to appreciate this argument and particularly the premises on which it is founded. It is true that the Act contains provisions which are intended to plug or detect evasion of tax and that some of the provisions referred to earlier can be invoked for detection of unaccounted money invested in immovable property. It is obvious, however, that the legislature found that those provisions in their practical working were not adequate or sufficient to meet the evil of tax evasion and it, therefore, introduced by amendment the impugned provision as ancillary to and in aid of the existing provisions. The impugned provision operates at a different point of time and in a different situation and aims at timely detection of persons who are believed on good grounds to be making investment of tax-evaded monies in real property. The legislature must be presumed to know best where the evil is at its w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislature intends to detect the real tax-dodger and, therefore, such an obligation is cast on him. Such or similar provisions are found elsewhere in the Act and are not uncommon in a taxing statute. Furthermore, it would not be unreason able to assume that a person who undertakes a building contract of such value would ordinarily be assessable to income-tax. Such a person could be compelled even otherwise to disclose this information in the course of his own assessment proceedings. In our opinion, therefore, the argument is devoid of merit. These were the only grounds urged in support of the challenge based on article 19(1)(f) and (g) and since, in our opinion, there is no merit in any of them, the challenge to the constitutionality of the impugned provision based on the provisions of the said sub-articles must fail. We might clarify that though the second and third petitioners are partnership firms, we have still examined the challenge to the impugned provision founded on article 19(1)(f) and (g) since the first petitioner, who is a partner in the said firms, has also joined as a party petitioner. That takes us to the challenge to the impugned provision founded on article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amely, to detect and prevent evasion of tax. It is, therefore, an integral part of a taxing statute and a necessary corollary to the provisions relating to the levy and collection of tax. It is as much a part of the overall scheme of taxation as the charging section or the sections which deal with computation of tax or exemptions. The constitutional validity of such a provision in the context of article 14 must, therefore, be tested on the same anvil on which the validity of the provisions dealing with the levy, computation or collection of tax might be tested. Now, while considering whether a taxing law is discriminatory or not, two things have to be borne in mind. In the first place, the courts recognise in the legislature considerable degree of elasticity in the choice of the object of taxation, manner of taxation and determination of rates of tax. The power to select the object of taxation or the mode of taxation or the rate of tax is ordinarily very wide and it is only when within the range of its selection the law operates unequally that it would be struck down as offending the guarantee of the equality clause. In the next place, the burden to establish discrimination in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h legislation cannot be struck down on the ground that it metes out hostile unequal treatment. In our opinion, the petitioners have failed to discharge the heavy burden which lay upon them to sustain the challenge to the impugned provision based on article 14 and the contention urged in that behalf must be rejected. Before we part with the matter, we must take action on one more argument which was pressed into service on behalf of the petitioners in support of the challenge under article 14 as well as under article 19. The argument was that the impugned provision cannot be treated as incidental or ancillary to the main provisions and that, therefore, it could not be said to have any rational nexus with the main provisions of the statute. In support of this argument, reliance was placed on the decision of the Supreme Court in Check Post Officer, Coimbatore v. K. P. Abdulla and Bros. The question which arose for consideration before the Supreme Court in that case was whether section 42(3) of the Madras General Sales Tax Act, 1969, which empowered the Check Post Officer to confiscate goods or levy penalty in lieu of confiscation when in respect of goods found in a vehicle the drive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is in this context that the Supreme Court observed that such a power could not be said to be incidental or ancillary to the power to levy sales tax. In the present case, we were concerned with a wholly different question, namely, whether the impugned provision violates article 19 or article 14 of the Constitution. The decision cannot, therefore, have any direct bearing on the question which falls for our consideration and the argument founded thereon is somewhat misconceived. In the next place, the provision with which we are concerned does not deal with or confer powers of the nature which were conferred by section 42(3) of the Madras Act. This is not the case where on the basis of any presumption made by the legislature a penalty such as seizure or confiscation or penalty in lieu of confiscation is sought to be levied. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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