Union of India & Anr. Etc. Etc. v. A. Sanyasi Rao & Ors. Etc. Etc.

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The Tax Publishers1996 TaxPub(DT) 0930 (SC) : (1996) 219 ITR 0330 : (1996) 132 CTR 0081 : (1996) 085 TAXMAN 0321 INCOME TAX --Presumptive income under s. 44AC----CONSTITUTIONAL VALIDITY--Denial of relief under ss. 28 to 43C to trades specified under s. 44AC. Ratio : The denial of relief under sections 28 to 43C to trades specified in section 44AC, available to other assessees, has no nexus to the object sought to be achieved by the legislature and to this extent the non obstante clause in section 44AC has no basis and so unfair and arbitrary and equality of treatment is denied to such persons, necessiating grant of appropriate relief. Held : (i) The word 'income' occurring in Entry 82 in List 1 of the Seventh Schedule should be construed liberally and in a very wide manner and the power to legislate will take in all incidental and ancillary matters including the authorisation to make provision to prevent evasion of tax, in any suitable manner. (ii) The object in enacting sections 44AC and 206C was to enable the revenue to collect the legitimate dues of the State from the peresons carrying on particular trades in view of the peculiar difficulties experienced in the past and the measure was so enacted to check evasion of substantial revenue due to the State. It is a matter of common knowledge that trade or business produces or results in income which can be brought to tax. In order to prevent evasion of tax legitimately due on such 'income', section 44AC and section 206C were enacted, so as to facilitate the collection of tax on that income which is bound to arise or accrue, at the very inception itself or at an anterior stage and considered in the said perspective, it is idle to contend that the aforesaid statutory provisions lack legislative competence. After all, the statutory provisions obliging to pay 'advance tax' is not anything new and the impugned provisions are akin to that. (iii) There is a clear distinction between the subject-matter of a tax and the standard by which the amount of tax is measured. Having regard to the past difficulties in making a normal assessment and collection in the case of certain categories of assessees, for convenience sake, the Legislature has chosen to make appropriate provision for collection of tax at an anterior stage by adopting the purchase price as the measure of tax. This is permissible and the standard by which the amount of tax is measured, being the purchase price, will not in any way alter the nature and basis of levy, viz., that the tax imposed is a tax on income. It cannot be labelled as a tax on purchase of goods. (iv) Further section 44AC read with section 206C are only machinery provisions and not charging sections. The charge for the levy of the income that accrued or arose is laid by the charging sections, viz., sections 5 to 9 and not by virtue of section 44AC or section 206C. The fact that the income is levied at a flat rate or at an earlier stage will not in any way alter the nature or character of the levy since such matters are completely in the realm of legislative wisdom. What is brought to tax, though levied with reference to the purchase price and at an earlier point is nonetheless income liable to be taxed under the Act. (v) Considered in the light of the practical difficulties envisaged by the revenue to locate the persons and to collect the tax due in certain trades, if the Legislature in its wisdom thought that it will facilitate the collection of the tax due from such specified traders on a 'presumptive basis', there is nothing in the said legislative measure to offend article 14. In the light of the legal principles stated above, section 44AC read with section 206C is not wholly hit by article 14. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers1996 TaxPub(DT) 0930 (SC) : (1996) 219 ITR 0330 : (1996) 132 CTR 0081 : (1996) 085 TAXMAN 0321

INCOME TAX

--Presumptive income under s. 44AC----CONSTITUTIONAL VALIDITY--Denial of relief under ss. 28 to 43C to trades specified under s. 44AC.

Ratio :

The denial of relief under sections 28 to 43C to trades specified in section 44AC, available to other assessees, has no nexus to the object sought to be achieved by the legislature and to this extent the non obstante clause in section 44AC has no basis and so unfair and arbitrary and equality of treatment is denied to such persons, necessiating grant of appropriate relief.

Held :

(i) The word 'income' occurring in Entry 82 in List 1 of the Seventh Schedule should be construed liberally and in a very wide manner and the power to legislate will take in all incidental and ancillary matters including the authorisation to make provision to prevent evasion of tax, in any suitable manner. (ii) The object in enacting sections 44AC and 206C was to enable the revenue to collect the legitimate dues of the State from the peresons carrying on particular trades in view of the peculiar difficulties experienced in the past and the measure was so enacted to check evasion of substantial revenue due to the State. It is a matter of common knowledge that trade or business produces or results in income which can be brought to tax. In order to prevent evasion of tax legitimately due on such 'income', section 44AC and section 206C were enacted, so as to facilitate the collection of tax on that income which is bound to arise or accrue, at the very inception itself or at an anterior stage and considered in the said perspective, it is idle to contend that the aforesaid statutory provisions lack legislative competence. After all, the statutory provisions obliging to pay 'advance tax' is not anything new and the impugned provisions are akin to that. (iii) There is a clear distinction between the subject-matter of a tax and the standard by which the amount of tax is measured. Having regard to the past difficulties in making a normal assessment and collection in the case of certain categories of assessees, for convenience sake, the Legislature has chosen to make appropriate provision for collection of tax at an anterior stage by adopting the purchase price as the measure of tax. This is permissible and the standard by which the amount of tax is measured, being the purchase price, will not in any way alter the nature and basis of levy, viz., that the tax imposed is a tax on income. It cannot be labelled as a tax on purchase of goods. (iv) Further section 44AC read with section 206C are only machinery provisions and not charging sections. The charge for the levy of the income that accrued or arose is laid by the charging sections, viz., sections 5 to 9 and not by virtue of section 44AC or section 206C. The fact that the income is levied at a flat rate or at an earlier stage will not in any way alter the nature or character of the levy since such matters are completely in the realm of legislative wisdom. What is brought to tax, though levied with reference to the purchase price and at an earlier point is nonetheless income liable to be taxed under the Act. (v) Considered in the light of the practical difficulties envisaged by the revenue to locate the persons and to collect the tax due in certain trades, if the Legislature in its wisdom thought that it will facilitate the collection of the tax due from such specified traders on a 'presumptive basis', there is nothing in the said legislative measure to offend article 14. In the light of the legal principles stated above, section 44AC read with section 206C is not wholly hit by article 14.