TMI Blog1986 (4) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... if his gross receipts in profession exceed ten lakh rupees in any previous year or years relevant to the assessment year commencing on the 1st day of April, 1985, or any subsequent assessment year, get his accounts of such previous year or years audited by an accountant before the specified date and obtain before that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed: Provided that in a case where such person is required by or under any other law to get his accounts audited by an accountant, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and obtains before that date the report of the audit as required under such other law and a further report in the form prescribed under this section. Explanation.-For the purposes of this section, (i) 'accountant' shall have the same meaning as in the Explanation below sub-section (2) of section 288 ; (ii) 'specified date', in relation to the accounts of the previous year or years relevant to an asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls and verifying whether purchases and sales are properly vouched or not. The time of the assessing officers thus saved could be utilised for attending to more important investigational aspects of a case. Having regard to the foregoing considerations, the Bill seeks to make a new provision in the Income-tax Act making it obligatory for a person carrying on business to get his accounts audited before the 'specified date' by an 'accountant' if the total sales, turnover or gross receipts in business for the accounting year or years relevant to the assessment year 1985-86 or any subsequent assessment year exceed or exceeds forty lakh rupees (corrected by authors in the light of the law as it stands). person carrying on profession will also have to get his accounts audited before the 'specified date', if his gross receipts in profession for an accounting year or years relevant to any of the aforesaid assessment years exceed ten lakh rupees. The proposed new provision also casts an obligation on such persons to obtain before the 'specified date ' a report of the audit in the prescribed form duly signed and verified by the 'accountant' setting forth such particulars as may be prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel submits that section 44AB has exceeded the jurisdiction and thereby it is arbitrary, discriminatory and violative of article 14 of the Constitution of India. I am afraid this submission of learned counsel is not well-founded. It is true that what is taxable is the total income of the individual under entry 82 of the Central List of the Seventh Schedule attached to the Constitution but all matters incidental to it shall come within the domain of this entry in order to effectuate the purpose and intent contained in the entry. The basic idea is to tax the income and in order to check the evasion of income, the Legislature is competent to make such laws under this entry. Thus, a perusal of the objects and reasons would show that this provision has been enacted in order to check fraudulent transactions or evasion. It will also facilitate the administration of the tax law by proper presentation of accounts before the taxing authority and that will considerably save the time of the Income-tax Officer for carrying out verification at the time of assessing the assessee's return and the same may be utilised for more important investigational aspects of the case. Hence, in this back g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8): " It was also contended that the impugned provisions are in excess of the powers conferred upon Parliament under entry 82 in List I of the Seventh Schedule to the Constitution. Entry 82 relates to 'taxes on income other than agricultural income '. According to the learned counsel, the impugned provisions result in taxing the gross receipts in respect of income in the guise of disallowing the expenditure. We are unable to agree with the learned counsel. The provisions are there, as already stated by us, to safeguard the revenues of the state. If there is evasion of tax on the income and if measures are taken to check evasion, it cannot be said that the measures taken are ultra vires or beyond the powers of the Legislature." In the case of Vallabhdas Manjibhai Dholakia v. CIT [1975] 98 ITR 403 (Guj), it has been held as under (at pages 421 and 422) : " The impugned provision is made on the basis of a well-known fact which is a matter of common knowledge and common report and all that it requires a building contractor to do is to furnish prescribed particulars within the stipulated time-limit on the pain of penalty with a view to detecting evasion of tax. Such a provision is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no force and it is rejected. It has been further submitted that under section 288 of the Income-tax Act, seven classes of persons have been permitted to appear before the Income-tax Officer but audit can be done only by a chartered accountant. This is discriminatory because persons similarly situated are treated dissimilarly. In this connection, learned counsel for the petitioner has placed reliance on the cases of State of Kerala v. Haji K. Haji Kutty Naha, AIR 1969 SC 378, ITO v. Lawrence Singh Ingly [1968] 68 ITR 272 (SC), New Manek Chowk Spg. Wvg. Mills Co. Ltd. v. Municipal Corporation of the City of Ahmedabad, AIR 1967 SC 1801 and R. B. Basu v. P. K. Mukherji, AIR 1957 Cal 449. Section 288 reads as under: "288. Appearance by authorised representative.-(1) Any assessee who is entitled or required to attend before any income-tax authority or the Appellate Tribunal in connection with any proceeding under this Act otherwise than when required under section 131 to attend personally for examination on oath or affirmation may, subject to the other provisions of this section, attend by an authorised representative. (2) For the purposes of this section, 'authorised repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns must be fulfilled, namely, (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group, and (ii) that that differentia must have a rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different bases, namely, geographical or according to objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. It is also well established by the decisions of the Supreme Court that article 14 condemns discrimination not only by a substantive law but also by a law of procedure." " The decisions of this court further establish (a) that a law may be constitutional even though it relates to a single individual if, on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself; (b) that there is always a presumption in favour of the constitutionality of an enactment and the burden is upon him who attacks it to show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accountant. Thus, this class has been specially recognised for the job and this cannot be said to be discriminatory so as to be violative of article 14 of the Constitution. It is only an invidious classification which is prohibited but if the classification is based on occupations like the present one, viz., that of chartered accountants, then such classification cannot be said to be violative of article 14 of the Constitution. In this connection, reference may be made to the case of Air India v. Nergesh Meerza, AIR 1981 SC 1829, wherein it has been held as under (at page 1842) : " Thus, from a detailed analysis and close examination of the cases of this court starting from 1952 till today, the following propositions emerge : (1) In considering the fundamental right of equality of opportunity, a technical, pedantic or doctrinaire approach should not be made and the doctrine should not be invoked even if different scales of pay, service terms, leave, etc., are introduced in different or dissimilar posts. Thus, where the class or categories of service are essentially different in purport and sprit, article 14 cannot be attracted. (2) Article 14 forbids hostile discrimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at they have taken merely the floor area for purposes of taxation. Their Lordships of the Supreme Court held as under (at page 380): " Where objects, persons or transactions essentially dissimilar are treated by the imposition of a uniform tax, discrimination may result, for, in our view, refusal to make a rational classification may itself in some cases operate as denial of equality." Thus, this case is wholly distinguishable; there the floor area of a building was only taken as a basis for taxation irrespective of other consideration, whereas objects, persons or transactions essentially dissimilar were treated by imposing a uniform tax. But this case hardly provides any analogy so far as the present case is concerned. Here, seven classes of persons are eligible to appear and represent the assessee before the Income-tax Officer, but audit report is admissible only by a competent person and for that the accountant alone has been recognised. This is because of professional reasons and the particular expertise which is required in the matter of auditing accounts. The classification has been made on the basis of occupation of a particular person. Thus, such a classification cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, learned counsel for the respondent submitted that the bigger assessees have been brought in this net because in the case of persons who have higher turnover or whose professional income is higher, their accounts will be more complicated and will require more scrutiny and this job will be made easier by audit report. A limit has been fixed by Parliament looking to the conditions obtaining before them. The Legislature is the best judge to lay down the limit because the evil which is being sought to be remedied by this enactment is the evasion of tax and the Legislature in its wisdom has thought it proper that the persons whose turnover is higher like group of Rs. 40 lakhs and 10 lakhs, such persons should be put to this auditing, then such classification cannot be said to be discriminatory so as to be violative of article 14 of the Constitution of India. In this connection, learned counsel for the respondent has invited my attention to the case of Murthy Match Works v. Assistant Collector of Central Excise, AIR 1974 SC 497. In this case, Krishna Iyer J., observed as under (headnote at page 497): " Bare equality of treatment regardless of the inequality of realities is neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and such reasonable restrictions like submitting audit report of the accounts of the persons whose turnover is more than Rs. 40 lakhs and professional income is more than Rs. 10 lakh, cannot be said to be violative of article 19(1)(g) of the Constitution. These are reasonable restrictions imposed with an intention to check evasion of tax and as such cannot render the provision violative of article 19(1)(g) of the Constitution. Learned counsel for the respondent, in this connection, has invited my attention to the case of Mohan Trading Co. v. Union of India [1985] 156 ITR 134 (MP) and T. S. Nataraj v. Union of India [1985] 155 ITR 81 (Kar). On the basis of these authorities, it has been argued that sections 44AB and 271B are not violative of article 19(1)(g) of the Constitution. I uphold the submission of learned counsel for the respondent and find there is no merit in the contention of learned counsel for the petitioner. The next limb of the argument of learned counsel for the petitioner is that the present section is unworkable because it is inconsistent with the various other provisions of the Act. Learned counsel submits that by virtue of section 44AB, no discretion has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... my attention to section 139(9)(e) which reads as under: " (e) where the accounts of the assessee have been audited, the return is accompanied by copies of the audited profit and loss account and balance-sheet and the auditor's report and, where an audit of cost accounts of the assessee has been conducted, under section 233B of the Companies Act, 1956 (1 of 1956), also the report under that section. " It has been submitted that where the accounts of the assessee have been audited, the return has to be accompanied by copies of the audited profit and loss account and balance-sheet. Thus, learned counsel submitted that where audited accounts are there, copies of the audit report have to accompany the return under section 139(9)(e) of the Income-tax Act and in case he does not file them, then too he can be subjected to penalty except when time has been allowed by the assessing authority. Thus, in this case also tinder section 139(9)(e), audit report has to be filed or otherwise the return will be improper. He emphasised that the filing of the audit report under section 139(9)(e) is also a must. Thus, he submits that both the provisions can be read consistently. I think the submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. He further submits that if the audit report is not submitted, then the assessee will be subject to penalty under section 271B whereas another assessee whose income is less than Rs. 1 lakh will not be subjected to this penalty. I am afraid, this submission of learned counsel is without any basis and it is not tenable. As already mentioned above, in order to guard against the evasion of tax, a particular class of assessees has been made subject to audit and failure is to be penalised under section 271 B. It is for the Legislature to lay down a rational classification as to which class of persons shall be subject to this audit. Looking to the facts and circumstances obtaining before Parliament, Parliament in its wisdom thought it proper to lay down the criteria of Rs. 40 lakhs and Rs. 10 lakhs, then such criteria cannot be said to be discriminatory nor can it be said to be harsh. It is already mentioned above that the persons who get their accounts audited under section 139(9)(e) will have to file their returns with the copies of the balance-sheet and audit report otherwise, it will be an incomplete return and in case it is an incomplete return, then other consequences shall automa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 10 lakhs, he has to get his accounts audited before submission of his return. In fact, section 142(2A) was a dormant provision which was to be invoked in a given situation and that has been made explicit by incorporating the same in section 44AB. Section 44AB has facilitated the task of the Income-tax Officer in that a person whose income (turnover or receipts) exceeds Rs. 40 lakhs or Rs. 10 lakhs is now bound to have complex accounts and, therefore, audit has been made necessary. Thus, both the provisions are consistent and the submission of learned counsel is without any basis and it is rejected. Learned counsel for the petitioner further submitted that the proviso to section 44AB trenches upon the provisions of the Companies Act and the other provisions of the Co-operative Societies Act, etc., where different periods for completing auditing have been provided. I am afraid this submission of learned counsel is without any basis. So far as tax purpose is concerned, the provisions of the Income-tax Act will be applicable and the petitioner assessee will have to get its accounts audited in terms of the provisions of the Income-tax Act. The provisions of the Companies Act cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that comes up for consideration is how section 44AB is to be interpreted. Whether this section is applicable to commission agents or not. My answer to the question is that the present section is applicable to commission agents also. While dealing with the validity of section 44AB, I have already extracted reasons for introducing this section. As a matter of fact, the necessary germ of section 44AB was already in existence, i.e., in section 142(2A) which has already been reproduced by me above. Previously, under section 142(2A), it was left to the discretion of the Income-tax Officer that if he thought it proper looking to the complexity of the accounts and in the interests of the Revenue, he can direct the assessee to get his accounts audited with the previous permission of the Commissioner. But that dormant provision has been made explicit by introducing section 44AB with the condition that persons whose turnover, sale or gross receipts exceeds Rs. 40 lakhs, or whose professional gross receipts exceed Rs. 10 lakhs, will have to get his accounts audited and he will have to file an audit report with the return for such of the previous year or years relating to the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e will be subject to this audit report. But, working as a commission agent, if he is not showing goods of his principal as his own sales or turnover, then he will not be subject to this audit. In plain and simple words, if any commission agent is wholly dealing with the selling and purchase of goods, not on his own behalf, but only gets remuneration for bringing the prospective purchaser and seller together then he shall not be governed by the provisions of section 44AB. But if goods are being sold by him and he is showing it as his own turnover, then he will have to be subjected to the requirements of audit. In this connection, learned counsel for the respondent has invited my attention to the case of Kandula Radhakrishna Rao v. Province of Madras, AIR 1952 Mad 718, Full Bench decision, wherein while dealing with the Madras General Sales Tax Act, the working of the commission agent has been dealt at length. In this case, learned counsel has invited my attention to para. 7, which reads as under (at pages 721 and 722): " The next question and by far the more important one is assuming that the plaintiffs have violated the conditions of the licences and, therefore, were not entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was delivery made to the buyers. The plaintiffs were paid commission and the other amounts which were called gumastha, dharma, rusum, etc. The payment of these sums was consented to by the sellers. Viswanatha Sastri J. alludes to the nature of the business in the, following passage in his judgment : ' Here the plaintiffs are mere commercial agents who brought buyers and sellers of groundnuts together, arranged the sale or purchase and earned a small commission or brokerage from both of them. The learned District judge described the situation thus : " An agent who merely brings a buyer and seller together cannot be said to buy or sell his goods on his own behalf, any more than a marriage broker who brings the parties together can be said to be a party to the marriage."' The facts in the Public Prosecutor v. Narasimha Reddy [1947] 2 Mad LJ 220, were also similar to the facts in government of Madras v. Veerabadrappa, ILR [1951] Mad 257. Chandrasekhara Aiyar J. referred to the accused in the case as having acted as a broker or commission agent who brought the seller and the buyer together. He pointed out that the word 'turnover' as defined was not appropriate to what is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of fact and, in a given case, invoice could be made the basis to show that particular sale was a sale of the commission agent or in a given case it may not be so. In this connection, Mr. Kothari has invited my attention to Sale of Goods by Ramaiya and also referred to the case of Hafiz Din Mohan ad Haji Abdulla v. Slate of Maharashtra [1962] 13 STC 292 (SC). In this case, the question was whether according to the agreement, it constitutes a relationship of principal and agent or vendee and vendor. As already mentioned above, it will depend on the facts whether commission agent has sold the goods for his brokerage or as a seller. Thus, this case cannot provide any help to learned counsel for the petitioner. In the case of Bhopal Sugar Industries Ltd. v. D. P. Dube, STO [1963] 14 STC 406 (SC), the questions turn on the fact whether the transaction amounted to a sale or not. In the case of C. A. Akhtar Company v. State of Tamil Nadu [1981] 47 STC 62 (Mad), the question was raised whether there was privity of contract between principal and buyer or not. In this case, one thing is significant, viz., that the case of Kandula Radhakrishna Rao, AIR 1952 Mad 718, a Full Bench de ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
