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PUNJAB & HARYANA HIGH COURT
S.S.Kang and Jai Singh Sekhon JJ.
Sat Pal And Co.
Versus
Excise And Taxation Commissioner
Civil Writ Petition No. 3947 of 1989,
C.M. No. 9868 of 1989,12383 of 1989,
Decided On : AUGUST 2, 1989
Sections 44AC, 206C, and 276BB of the Income-tax Act, 1961, which deal with the taxation of profits and gains from the sale of alcoholic liquor, are constitutionally valid. The provisions are not violative of Articles 14, 19(1)(g), 240, or 258 of the Constitution.
Fact of the Case:
The petitioners, who are liquor contractors, challenged the constitutional validity of Sections 44AC, 206C, and 276BB of the Income-tax Act, 1961, which impose a tax on the profits and gains from the sale of alcoholic liquor. The petitioners argued that the provisions were beyond the legislative competence of Parliament, violative of Articles 14 and 19(1)(g) of the Constitution, and discriminatory.
Finding of the Court:
The court held that Parliament was competent to enact Sections 44AC and 206C of the Act. The tax levied under these sections is tax on income and not on purchases. Section 44AC read down is an adjunct to Sections 28 to 43C and 206C. Even country liquor contractors have to be assessed in relation to their business in country liquor in accordance with the provisions of Sections 28 to 43C, Thus read, Section 44AC does not suffer from any constitutional infirmity. The collection of tax at source provided by Section 200C is relatable to the purchase price and not to the income component thereof.
Issues: 1. Whether Parliament was competent to enact Sections 44AC and 206C of the Income-tax Act, 1961? 2. Whether the provisions of Sections 44AC and 206C are violative of Articles 14 and 19(1)(g) of the Constitution? 3. Whether the provisions of Sections 44AC and 206C are discriminatory?
Ratio Decidendi: 1. Parliament is competent to enact laws in respect of income-tax under Entry 82 of List I of the Seventh Schedule to the Constitution. The provisions of Sections 44AC and 206C are within the legislative competence of Parliament as they deal with the taxation of profits and gains from the sale of alcoholic liquor, which is a form of income. 2. The provisions of Sections 44AC and 206C are not violative of Articles 14 and 19(1)(g) of the Constitution. The provisions are not discriminatory as they apply equally to all persons engaged in the business of sale of alcoholic liquor. The provisions are also not arbitrary or unreasonable as they are designed to prevent evasion of tax and to ensure that the government receives its due share of revenue from the sale of alcoholic liquor. 3. The provisions of Sections 44AC and 206C are not discriminatory. The classification of liquor contractors into two categories, namely, those who sell country liquor and those who sell Indian-made foreign liquor, is reasonable and has a rational basis. The two types of liquor are distinct and separate goods having distinct characteristics and cater to different strata of society.
Final Decision: The court dismissed the writ petitions and upheld the constitutional validity of Sections 44AC, 206C, and 276BB of the Income-tax Act, 1961.
Sukhdev Singh Kang, J.
1. The challenge in this bunch of writ petitions is directed against the legality and constitutional validity of Sections 44AC, 206C and 276BB incorporated in the Income-tax Act, 1961 (hereinafter referred to as "the Act"), by the Finance Act, 1988. The petitioners, also impugn the directions (annexure P-1) issued by the Excise and Taxation Commissioners of the States of Punjab and Haryana directing the owners/managers of the distilleries situated within their respective States to treat 40 per cent. of the sale price of alcoholic liquor for human consumption (other than Indian made foreign liquor) (hereinafter, for brevitys sake, referred to as "country liquor") as profits and gains of the buyers (petitioners liquor contractors) from business and recovering income-tax at the rate of 15 per cent. of such profits and gains from the buyers with effect from June 1, 1988. For the purpose of calculating income-tax recoverable from the buyer, a seller shall add the excise duty paid by the purchaser to the State Government on behalf of the seller to the price charged or to be charged for such sale of country liquor.
2. The pleadings in Civil Writ No. 3947 of 1989 shall furnish the factual matrix : The petitioners therein are engaged in the business of sale of liquor in the States of Punjab and Haryana. The Excise and Taxation Commissioner, Haryana (hereinafter referred to as "respondent No. 1"), auctioned among others, country liquor vends of Camp Area of Yamunanagar, Damra and Harmal, for the years 1989-90. The petitioners being the highest bidders were sold these vends. As per the terms and conditions and the prevalent practice, the liquor contractor who intends to purchase country liquor for sale at his vend is required to deposit excise duty payable in respect of the quota of the country liquor he seeks to purchase. On proof of this deposit of excise duty, the excise authority issues a permit to the liquor contractor to purchase country liquor from the distillery arid to transport and sell it at his vend. The distillery charges for the liquor sold by them are regulated by the Government and they include the price of the liquor and the expenses on bottling, labelling, etc.
3. Parliament passed the Finance Act, 1988, and it has, among others, introduced Sections 44AC, 206C and 276BB in the Income-tax Act. The provisions of Section 44AC have been enforced with effect from April 1, 1989. These sections, in so far as they are relevant for our purpose, read as under :
"44AC. (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;
(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
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