1988 (7) TMI 47 - HC - Income Tax

Summary

Issues: Interpretation of provisions of section 44AC and 206C of the Income-tax Act, legality of press note dated June 23, 1988, clarification on collection of tax from buyers, challenge to the implementation of section 44AC.

In this judgment by the High Court of Karnataka, the petitioner, a firm engaged in the timber business, challenged a press note issued by the Minister of Finance regarding the application of section 44AC of the Income-tax Act. Section 44AC, introduced by the Finance Act of 1988, deals with computing profits and gains from trading in specified goods and deems a percentage of the purchase price as the profits chargeable to tax. The petitioner contended that the collection of tax as per the press note would result in an illegal levy of 66 2/3% of the income comprised in the purchase price, contrary to section 206C and section 2(29C) of the Act defining "maximum marginal rate."

The court analyzed the provisions of section 44AC and 206C, emphasizing that the deemed profits to be collected at source from the buyer are based on a percentage of the purchase price specified in the table annexed to the Act. The court clarified that the amount to be collected towards income tax from the buyer cannot be any amount other than the purchase price, and the percentage of the purchase price deemed as profits is clearly specified in the table. The press note and circulars issued were deemed to provide clarification on the application of the provisions, ensuring no ambiguity in the interpretation of section 206C.

The court rejected the petitioner's argument that the tax collection would amount to 66 2/3% of the income, stating that the provisions clearly outline the percentage of deemed profits to be collected. The judgment highlighted that the press note was issued for clarification purposes and there was no basis for the petitioner's apprehension regarding the tax levy. Consequently, the court dismissed the writ petition challenging the press note dated June 23, 1988, affirming the legality and clarity of the provisions of section 44AC and 206C in computing profits and collecting tax from buyers in specified goods businesses.