Judgement

PARIPOORNAN, J. :- In this batch of cases - writ petitions filed under Article 32 of the Constitution of India and civil appeals and special leave petitions filed under Article 136 of the Constitution of India - substantially similar questions arise for consideration. The matter arise under the Incometax Act, 1961. The validity of Sections 44AC and 206C of the Income-tax Act, 1961 (hereinafter referred to as the Act) is posed for consideration. Various assessees challenged the aforesaid provisions as ultra vires and beyond legislative competence and also violative of Articles 14 and 19(1) (g) of the Constitution of India in a few High Courts. Substantially, the challenge was not accepted by all the High Courts. A few High Courts have read down the provisions of Section 44AC of the Act. Dissatisfied by the same, the assessee have come up in appeal. Feeling aggrieved by the reading down of Section 44AC of the Act, the Union of India has come up in appeals. Those are covered by civil appeals. Certain other assessees have challenged the aforesaid provisions directly under Article 32 of the Constitution of India. Those are covered by writ petitions. A few assessees, feeling aggrieved by the decisions of the High Courts, have filed special leave petitions seeking leave of this Court to file appeals. Since all these three classes of cases involved consideration of the validity or otherwise of Sections 44AC and 206C of the Act, they were heard together.

2. Section 44AC of the Act was inserted by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1-4-1989. Section 206C of the Act was inserted by the Finance Act, 1988 with effect from 1-6-1988. The above sections are re-produced herein below :-

"44AC. Special provision for computing profits and gains from the business or trading in certain goods :- (1) Notwithstanding anything to the contrary contained in Sections 28 to 43C, in the case of an assessee, being a person other than a public sector company (hereafter in this section referred to as the buyer), obtaining in any sale by way of auction, tender or any other mode, conducted by any other person or his agent (hereafter in this section referred to as the seller), -

(a) any goods in the nature of alcoholic liquor for human consumption (other than Indian-made foreign liquor), a sum equal to forty per cent of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head "Profits and gains of business or profession." :

Provided that nothing contained in this clause shall apply to a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act;

The following explanation is being inserted by the Finance Act, 1990 with effect from 1 April, 1991 :

Explanation :- For the purpose of this clause, purchase price means any amount (by whatever name called, paid or payable by the buyer to obtain the goods referred to in this clause, but shall not include the amount paid or payable by him towards the bid money in an auction, or as the case may be, the highest accepted offer in case of tender or any other mode :

(b) the right to receive any goods of the nature specified in column (2) of the Table below, or such goods, as the case may be, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of the amount paid or payable by the buyer in respect of the sale of such right or as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head "Profits and gains of business or profession."

TABLE

S. No.Nature of goodsPercentage

(1)(2)(3)

i)Timber obtained under a forest leaseThirty-five per cent

ii)Timber obtained by any mode other than