TMI Blog1997 (9) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... principles stated by their Lordships in the aforementioned judgment. It was held that section 19-A made a provision for deduction of tax at certain percentages on the total amount payable to a dealer in respect of a works contract which meant that such deductions have to be made even on the amounts which were not otherwise exigible to tax, but which sometimes form an integral part of the total amount. While repelling the argument that section 19-A was only a machinery provision, meant to make the charging section effective, the court held that an ancillary provision could not go beyond the legislative power of the State and must confine itself to the power conferred on it by an entry in one or the other lists enumerated in the Constitution. The court upheld the argument that in the garb of the machinery provisions made by the Legislature for recovery of a tax it could not enact a provision under which advance tax could be levied even in respect of the amounts that were not exigible to tax either under the State or the Central sales tax enactments. The provisions of section 19-A were accordingly found to be ultra vires of the Constitution struck down. The reasoning for the view pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y body, shall deduct out of the amounts payable by them to a dealer in respect of works contracts of the nature specified in the Sixth Schedule executed for them, in the State, an amount calculated,- (a) in the case of a dealer who is permitted to pay amount by way of composition under sub-section (6) of section 17, at the rate of four per cent of the total amount payable to such dealer; (b) in the case of a dealer other than the dealer referred to in clause (a), at the rates specified in the Sixth Schedule: Provided that,- (i) no such deduction shall be made if the amount payable to a dealer by the authorities mentioned in sub-section (1), is less than one lakh rupees in a year; or (ii) if any works contract for execution for the authorities mentioned in subsection (1), involves only labour or service but does not involve transfer of property in goods and it is certified to be so by the assessing authority or by the assessing authority of the area on an application made by any dealer, the provisions of sub-section (1) shall not apply and every such application shall be disposed of by the assessing authority within one month from the date of receipt, either by issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Deduction of tax at source under sub-section (1) of section 19-A is thus made at the prescribed rates on only 75 per cent of the total receipts disbursed to a dealer executing such contracts. 4. The petitioner who is a class-1 contractor presently engaged in the construction of a road in Belur Industrial Area in Dharwad is dissatisfied with the machinery provided by section 19-A, even in its present incarnation. He has questioned the provisions of section 19-A, on the basis of a three-fold argument. Firstly, it is contended that since section 5B of the Act read with Rules permits full deduction of the amount received on account of labour or services provided, section 19-A should also have provided for the same. Secondly, it is urged that even in cases where the books of account maintained by the dealer were not accepted by the assessing authority, deductions on account of labour and other charges were admissible to the extent of 30 per cent of the total contract receipts. In having provided for a deduction to the extent of only 25 per cent of the contract receipts, the provisions of section 19-A, argued the learned counsel, do not adhere to the well-recognised principle t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he taxes that are validly levied. Such a provision may provide for a recovery on a tentative basis both as regards the total amount on which the recoveries are made as also the rate at which the same are made. Section 19-A, as it stood, authorised deductions at source, at a rate lower than the one at which works turnover was taxable under the Sixth Schedule. For instance, in the case of works contracts falling under Sl. No. 6 of the Sixth Schedule, it permitted deduction at the rate of 2 per cent of the total amount payable to the dealer against a rate of 8 per cent otherwise prescribed by the Schedule. In regard to the rest, it prescribed a uniform rate of 4 per cent even though the rate prescribed in the Sixth Schedule varied from 4 per cent to 15 per cent. The substituted provision however, classifies the dealers differently for purposes of deduction at source. It permits deduction at source at the rate of 4 per cent of the total amount payable to such dealers in cases where the dealers are permitted to pay the tax amount by way of composition under sub-section (6) of section 17 of the Act. In the remaining cases, the substituted provision permits deduction at source at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then stood alone was the basis of this Court holding that the provision was unconstitutional for in the absence of such a provision, the deduction at source would be even in respect of amounts that are received by the dealer but are not otherwise taxable under the Act. The decision of this Court does not however lay down that deductions for purposes of recovery of tax at source ought to be to the fullest extent possible or that the validity of the provision permitting such deductions could be judged on golden scales. What was found unacceptable by the court was the absence of a provision in section 19-A permitting deductions even on a tentative basis in regard to amounts that were not admittedly taxable. That however is not the position in section 19-A as it now stands. Not only does the provision permit total exclusion of such deductions in cases where the works contract involves only supply of labour or services but it permits deductions even in contracts involving transfer of goods to the extent of 25 per cent of the total receipts. Just because the deductions are tentative in nature or the same are less than the total deductions that the dealer might on regular assessment be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inatory impact. In such a complex arena in which no perfect alternatives exist, the court does well not to impose too rigorous a standard of scrutiny lest all local fiscal schemes become subjects of criticism under the equal protection clause. 7.. In Union of India v. Sanyasi Rao [1996] 219 ITR 330, the Supreme Court was examining the constitutional validity of section 44AC of the Incometax Act, which made a special provision for computing profits and gains from business of trading in certain goods. Section 206C of the Income-tax Act provided for deduction at source of income-tax from persons carrying trading activities in alcoholic liquor, forest produce and scrap, etc., and authorised deduction at source by way of tax under the Act, a sum equal to 15 per cent of the amount paid by such dealer towards the purchase of goods by him. The provisions enabled the revenue to estimate the profits of a person engaged in the trades mentioned above on a presumptive basis. Upholding the provision, the Supreme Court held, that the same had been enacted in the light of the practical difficulties faced by the Revenue. Such provisions aimed at facilitating collection of the tax on a presumptiv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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