TMI Blog1971 (7) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... entry 82, List I of the Seventh Schedule to the Constitution ; and (2) that it violates the fundamental right guaranteed under article 19(1)(g) of the Constitution. Rule 6DD is also challenged on the ground that it is beyond the competence of the rule-making authority and repugnant to article 14 of the Constitution. To appreciate the tenability or otherwise of the contentions raised in these two writ petitions, it will suffice if we refer to the relevant facts stated in the affidavit filed in support of Writ Petition No. 4603 of 1970. The petitioners are all firms represented by their respective partners. They are merchants and commission agents. All of them are income-tax assessees. According to them, the agriculturists bring their produce in cart-loads from their respective villages to the market yard at Nizamabad and some of the merchants act as commission agents on behalf of the agriculturists and put up the produce at an auction for sale. The sale bill contains the nature of the grain or produce, weight, rate, total price brokerage and weighment charges, etc. The sales are all conducted under the supervision of the market committee, which also collects the market fee. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the impugned provisions of the Act and are not discriminatory or arbitrary. The alleged inconvenience if any, is not such as to warrant any inference of infringement of constitutional or other legal rights of the petitioners. The restriction imposed is only in regard to payments which exceed Rs. 2,500. Neither the impugned provisions of the Act nor the rules made thereunder are ultra vires. We may now read the relevant provisions which have come in for challgenge : " 40A. Expenses or payments not deductible in certain circumstances.-(1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head 'profits and gains of business or profession'....... (3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the official Gazette, in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawn on a bank or by a crossed bank draft in the cases and circumstances specified hereunder, namely :- (a) Where the payment is made to- (i) the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) ; (ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959) ; (iii) any co-operative bank or land mortgage bank ; (iv) any primary agricultural credit society as defined in clause (cii) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934), or any primary credit society as defined in clause (civ) of that section ; (v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956) ; (vi) the Industrial Finance Corporation of India established under section 3 of the Industrial Finance Corporation Act, 1948 (15 of 1948) ; (vii) the Industrial Credit and Investment Corporation of India Ltd. ; (viii) the Industrial Development Bank of India, established under section 3 of the Industrial Development Bank of India Act, 1964 (18 of 1964) (ix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the payment is made for the purchase of the products manufactured or processed without the aid of power in a cottage industry, to the producer of such products ; (h) where the payment is made in a village or town, which on the date of such payment is not served by any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town. (i) where any payment by way of gratuity, retrenchment compensation or similar terminal benefit, is made to an employee of the assessee or the heirs of any such employee on or in connection with the retrenchment, resignation, discharge or death of such employee, if the income chargeable under the head 'Salaries' of the employee in respect of the financial year in which such retirement, resignation, discharge or death took place or the immediately preceding financial year did not exceed Rs. 7,500 ; (j) in any other case, where the assessee satisfies the Income-tax Officer that the payment could not be made by a crossed cheque drawn on a bank or by a crossed bank draft due to exceptional or unavoidable circumstances and also furnishes evidence to the satisfaction of the Income-tax Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to Rs. 1,25,000 as income ; even though the income of the dealer is Rs. 25,000, he will be assessed to tax on Rs. 1,25,000. Further, this would amount to taxing the additional amount of Rs. 1,00,000 which is not an income. " As already noticed, sub-section (3) of section 40A has been introduced to encounter problems arising out of evasion' of tax. More stringent measures were required to plug the loopholes. Computation of income under the head " profits and gains of business or profession " has to be made in accordance with the provisions contained in sections 30 to 43A. The provisions of section 40, which deal with amounts not deductible, were found to be inadequate to deal with the evasion of tax under the cloak or guise of permissible deductions. It is to remedy that mischief resulting in loss of revenue to the State that sub-section (3) of section 40A was introduced. A dealer who can afford to purchase goods worth about Rs. 1,00,000, it will be reasonable to assume, will necessarily have a bank account and there is no reason why such a dealer should think of withdrawing cash from the bank and then make payment to the seller in cash when it is convenient and much more pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The fact that rule 6DD specifies the cases where sub-section (3) of section 40A will not be applicable if payments are made otherwise than by a crossed cheque drawn on a bank or a crossed bank draft, will not render the rule discriminatory on the ground that it has excluded the other classes or persons not named therein. The cases specified form a different class altogether and it is impossible to have clandestine or fictitious dealings with the institutions or bodies specified in the rule. What is required is that there must be a reasonable nexus between the cases or classes exempted and the object of the provisions under consideration. No harm will result to public revenue even if payments are made to the institutions or bodies specified in the impugned rule otherwise than in accordance, with sub-section (3) of section 40A. Special treatment of the cases specified in the rules is founded upon a reasonable and rational basis. As pointed out in Ramkrishna Dalmia v. Justice Tendolkar : " ....The legislature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest." The legislature is under no obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also legislation which prevented the tax imposed being evaded. Subba Rao J (as he then was) in Balaji v. Income-tax Officer held that the entries in the legislative lists of the Constitution are not powers but are only fields of legislation and the widest import and significance should be given to the language used by Parliament in the various entries. That was a case where a writ of certiorari was prayed for to quash the assessment order challenging the constitutional validity of section 16(3)(a)(i) of the Indian Income-tax Act, 1922. Their Lordships held that the provisions were enacted for preventing evasion of tax and were well within the competence of the Federal Legislature under the Government of India Act, 1935. As held by the Federal Court and Supreme Court, the power to legislate on a specified topic includes power to legislate in respect of matters which may fairly and reasonably be said to be comprehended therein. (See United Provinces v. Mst. Atiqa Begum, Navinchandra Mafatlal v. Commissioner of Income-tax, Balaji v. Income-tax Officer and Check Post Officer, Coimbatore v. K. P. Abdullah and Bros.) It is thus manifest that entry 82, a taxing entry, confers powe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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