LexUNION OF INDIA AND ANR. ETC. ETC. versus A. SANYASI RAO AND ORS. ETC. ETC.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
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UNION OF INDIA AND ANR. ETC. ETC.
v.
A. SANY ASI RAO AND ORS. ETC. ETC.
FEBRUARY 13, 1996
(A.M. AHMADI, CH, S.C. SEN AND K.S. PARIPOORNAN, JJ.)
Income Tax Act. 1961-Section 44AC-Inserted by Finance Act,
198~Section 206C-Inseited by Tax Laws Amendment Act, 1989-Com-
putation of profit or loss on presumptive basis-Validity-{Jpheld.
Constitution of India-A1t. 14-Validity of-Sections 44AC, 206C of
Income Tax Act-Held : Valid.
Constitution of India-Schedule VII-List-I Enby-82--Levy of tax at
the point of purchas~Held, a tax on income.
The Petitioners from various states challenged the validity of Section
206C of the Income Tax Act, 1961 inserted by the Finance Act, 1988 with
effect from 1.6.1988 and Section 44AC of the Income Tax Act, 1961 inserted
by the Direct Tax Laws (Amendment) Act,'1989 with effect from 1.4.89. The
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challenge was inter alia made on the ground that aforesaid provisions were
ultra vires, beyond legislative competence and also violative of Articles 14
and 19(1) (g) of the Constitution of India. The ffjgh Court of Andhra
Pradesh upheld the validity of the Act of 1989, read down Section. 44AC
and held that the said provision is only an adjunct to and explains the
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provisions of Section 206C and does not dispense with the regular assess-
ment in accordance .with the provisions of the income Tax Act, 1961. The
decision of Andhra Pradesh High Court was followed by High Courts of
Orissa and Punjab & Haryana.
The assessee contended that Section 44AC and 206C of the Act of
G 1961 lack legislative ~ompetence, Section 44AC levies a tax on purchase
and by deeming provisions, tax is levied on hypothetical income and not
on real income; that the levy under Section 44AC read with Section 206C
is highly arbitrary and discriminatory; that there is no r~tionale for
discrimination; that there is no material available for adopting the per-
H centage fixed in Sections 44AC and 206C of the Act, and that the proviso
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U.0.1. v. A.S. RAO
571
to Section 206C applies only to traders and to manufacturers which is also A
discriminatory.
The Revenue defended the competence on the ground that it is
fallacious to contend that Section 44AC levies a charge and Sections 4 and
5 of the Act are the charging sections; that income or profit is embedded
even at the point of purchase; that Section 44AC read with Section 206C
only provides a machinery or mechanism to tap the income which accrues
and is charged under Sections 4 and 5 of the Act; that it is open to the
legislative, i.e. its wisdom to specify the stage and rate at which it is to be
levied and it shall not be scrutinised by the Court; that the legislation will
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fall within Schedule VII List I Entry 82 and the sutliciency of material is C
not open to the objects that are sought to be achieved; that in case of
taxation laws, the legislature has got a wide discretion to pick and choose
persons, objects, districts etc. for legislating and it is allowed if it does so
reasonably and that the provisions are reasonable on the objects sought
to be achieved.
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Disposing of the matters, this Court
HELD : 1. The collection of tax due from specified traders on a
"presumptive basis" does not offend Article 14 of the Constitution. Hence
Sections 44AC read with Section 206C are not wholly hit by Article 14 of E
the Constitution of India. (598-E-F]
Ram Klishna Dalmia v. Justice S.R. Tendolkar, AIR (1958) SC 538;
Khandige Sham Bhat v. Agrl. Income Tax Officer and Another, AIR (1963)
SC 591; Khyerbari Tea Co. Ltd. v. State of Assam and others, AIR (1964) SC
925; Raja Jagannath Baks.h Singh v. State of U.P., (1963] 1 SCR 220 =AIR
(1962) SC 1563; East India Tabacco Co. v. State of A.P., (1963] 1 SCR
404=AIR (1962) SC 1733;K.T. Moopil Nairv.State of Kera/a, (1961] 3 SCR
77 =AIR (1961) SC 552; The Twyford Tea Co. Ltd. and another v. The State
of Kera/a and another, AIR (1970) SC 1133 and Ganga Sugar Corporation
Ltd. v. State of U.P. and others, Air (1980) SC 286, relied on.
2. Section 44AC is a valid piece of legislation and is an adjunct to
and, explanatory to Section 206C. It does not dispense with the regular
assessment, as provided in accordance with Sections 28 to 43C of the Act.
(600-C-D]
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3. The denial of grant of relief under Sections 28 to 43C of the Act H
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SUPREME COURT REPORTS
(1996] 2 S.C.R.
A of 1961 to certain trades specified in Section 44AC, has no nexus to the
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