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TMI Blog1971 (7) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sellers are paid in cash for the produce the same day and the goods are delivered to the purchasers with the bills prepared. Commission to the commission agents as per the percentage noted in the bills is paid to them by cheque or draft on the 5th or 6th day after the goods are taken delivery of by the buyers. The produce bought at such auctions by the buyers normally exceeds a sum of Rs. 2,500. The commission agents pay in cash to the sellers " due to the exigencies of business, custom and nature of business " and it takes about 7 or 8 days for them to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 not be allowed as a deduction : Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st day of April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof 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, the allowance originally made shall be deemed to have been wrongly made and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) the Unit Trust of India established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963) ; (x) the Madras Industrial Investment Corporation Ltd., Madras ; (xi) the Andhra Pradesh Industrial Development Corporation Ltd., Hyderabad ; (xii) the Kerala State Industrial Development Corporation Ltd., Trivandrum ; (xiii) the State Industrial and Investment Corporation of Maharashtra Ltd., Bombay ; (xiv) the Punjab State Industrial Development Corporation Ltd., Chandigarh ; (xv) the National Industrial Development Corporation Ltd., New Delhi ; (xvi) the Mys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Officer as to the genuineness of the payment and the identity of the payee." Sub-section (3) of section 40A was added by the Finance Act of 1968 and sub-section (4) was inserted by the Finance Act of 1969. These provisions were inserted as section 40, which prohibited deductions in certain cases specified thereunder, was found to be inadequate to achieve the object sought to be achieved, viz., checking tax evasion. Sub-section (3) injuncts that an assessee shall not be entitled to claim deduction unless, in regard to the expenditure incurred by him, payment is made where such expenditure exceeds Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 practicable to make payment by a crossed cheque or by a crossed bank draft, unless it be a case where he wants to have clandestine transactions with the unaccounted money that he possesses. Even assuming that the cash receipts on any day exceed Rs. 1,00,000 as to enable the dealer to purchase goods from cash receipts, if he can satisfy the Income-tax Officer that, having regard to exceptional or unavoidable circumstances he could not make payment by a crosssed cheque or a crossed bank draft, he would still be entitled to claim deduction under rule 6DD. The restriction imposed requiring payment, in case i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to extend the restrictions to all classes of cases. Here, the restriction or the prohibition is extended only to such classes or cases having regard to the degree of " public injury or harm " that has occasioned by the commercial transactions. If an evil is specially experienced in a particular branch of business or persons involved in business, it is not necessary that the prohibition should embrace every other class of cases concerned with business transactions. The powers of the State to classify for purposes of taxation are of " wide range and flexibility ". It is perfectly open to the legislature to e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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