TaxTMI 
TaxTMI 
1986 (4) TMI 332
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....evious year or years relevant to the assessment year commencing on the last 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 assessment year, means the date of the expiry of four months from the e....
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....ers thus saved could be utilised for attending to more important investigational aspect of a case. Having regard to the foregoing considerations the Bill seeks to make a new provision in the Income-tax Act making into 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). A person carrying on profession will also have to get his accounts audited before the "specified date" if his gross receipts in profession for any 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 prescribed by rules made in this behalf by the Central Board of Direct Taxes. In cases where accounts a....
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.... discriminatory and violative of article 14 of the Constitution of India. I am afraid this submission of the 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 the matters incidental to such shall come within the the domain of this entry in order to effectuate the purpose and intend contained in the entry. The basic idea is to tax the income and in order to check the evasion of the 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 transaction 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 Officers for carrying out the verification at the time of assessing the assessee's return and same may be utilised for more important investigational aspect of the case. Hence in this background it has been made obligatory for the assessee whose total sales, turnov....
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....that the impugned provisions are in excess of the powers conferred upon the 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 the 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 Vallabhadas Manjibhai Dholakia v. B.A. Shariff 1975 Tax LR 725 (Guj), it has been held as under: "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 clearly incidental or ancillary to the ....
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....her submitted that under section 288 of the Income-tax Act 7 persons have been permitted to appear before the Income-tax Officer but audit can only be done 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 K. Kutty Naha AIR 1969 SC 378, Income-tax Officer, Assam v. Lawrence Singh Ingty AIR 1968 SC 658, New Manek Chowk Spg. and Wvg. Mills Co. Ltd. v. Municipal Corporation of 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 representative' means a a person authorised by the ass....
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.... 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 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 that there has been a clear transgression of the constitutional principles; (c) that it....
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.... to be a discriminatory so as to be violative of article 14 of the Constitution. It is only invidious classification which is prohibited but if the classification is based on occupation like the present one that of a chartered accountant 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: "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 spirit, article 14 cannot be attracted. (2) Article 14 forbids hostile discrimination but not reasonable classification. Thus, where persons belonging to a particular class in view of their special a....
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....dships of the Supreme Court held as under: "Where objects, persons or transactions essentially dissimilar are treated by the imposition of a uniform tax, discrimination may result, for, refusal to make a rational classification may itself in some cases operate as denial of equality." Thus, this case is wholly distinguishable that floor area of 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 provide any analogy so far as the present case is concerned. Here 7 persons are eligible to appear and represent the assessee before the Income-tax Officer, but only audit report is admissible by a competent person and for that accountant alone has been recognised. This is because of the professional reasons and the particular expertise, which is required in a matter of auditing accounts. The classification has been made on the basis of occupation of particular person. Thus, such a classification cannot be said to be invidious classification so as to be violative of article 14 of the Constitution. Similar is the position in....
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....n brought in this net because persons who have higher turnover or whose professional income is higher their accounts will be more complicated and it will require more scrutiny and this job will be made easier by audit report. Limit has been fixed by the 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 lacs and Rs. 10 lacs 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 the 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: "Bare equality of treatment regardless of the inequality of realities is neither justice nor homage to the constitutional principle. Another proposition which is equally settled is that merely beca....
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....port of the accounts of the persons whose turnover is more than Rs. 40 lacs and professional income is Rs. 10 lacs then such cannot be said to be violative of article 19(1)(g) of the Constitution. These are the reasonable restrictions imposed with intention to check the evasion of the tax and as such cannot render the provision violative of article 19(1)(g) of the Constitution. The learned counsel for the respondent in this connection has invited my attention to the cases 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 the learned counsel for the respondent and find there is no merit in the contention of the learned counsel fur the petitioner. The next limb of the argument of the learned counsel for the petitioner is that the present section is unworkable because it is inconsistent with the various other provisions of the Act. The learned counsel submits that by virtue of section 44AB, no discretion has been left with the Income-tax Officer ....
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....ounts 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 233-B 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, the learned counsel submitted that where audited accounts are there and the copies of that audit has to be accompanied with the return under section 139(9)(e) of the Income-tax Act and in case he does not file then too he can be subjected to penalty except a time has been allowed by the assessing authority. Thus, in this case also under section 139(9)(e) audit report has to be filed 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 submission of the learned counsel is correct as both the provisions contained under s....
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....ty under section 271B whereas another assessee whose income is less than I lac he will not be subjected to this penalty. I am afraid, this submission of the learned counsel is without any basis, and is not tenable. As already mentioned above, that in order to safeguard the evasion of tax, particular class of assessee has been made subject to audit and failure has been penalised under section 271B. This is for the legislature to lay down a rational classification that which class of persons shall be subject to this audit. Looking to the facts and circumstances obtaining before the Parliament, Parliament in its wisdom thought it proper to lay down the criteria of 40 lacs and 10 lacs then such criteria cannot be said to be discriminatory nor it can be said to be harsh. It is already mentioned above that the person who get their accounts audited under section 139(9) they will have to file return with the copies of the balance sheet and audit report otherwise it will be incomplete return and in case it is incomplete return then other consequences shall automatically follow. Therefore the audit has been made compulsory for the particular class of persons under section 44AB -then it canno....
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.... given situation has been made explicit by incorporating the same in section 44AB. Section 44AB has facilitated the task of the Income-tax Officer that person whose income exceeds Rs. 40 lacs or 10 lacs is now bound to have a complexed accounts and therefore audit has been made necessary. Thus, both the provisions are consistent and the submission of the learned counsel is without any basis and is rejected. The 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 auditing has been provided. I am afraid this submission of the learned counsel is without any basis. So far as tax purpose is concerned the provision 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 cannot override the provisions of the Income-tax Act. Then the learned counsel submitted that the submission of audit report will amount to abdication of the discretion exercised by the Income-tax Officer t....
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....mission agent. 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 have already been reproduced by me above. Previously under section 142(2A) it was left with the discretion of the Income-tax Officer that if he thought it proper looking to the complexity of the accounts and in the interest of the revenue he can direct the assessee to get his accounts audited with previous permission of Commissioner. But that dormant provision has been made explicit by introducing section 44AB with the condition that persons whose turnover, sale or gross receipts exceed 40 lacs or his professional income's gross receipts exceed 10 lacs then he 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 relates to the assessment year within a period of 4 months from the end of the previous year or whereas more than one previous year from the end of the previous year which expired last before the commencement of the year whichever is later. Thus, the asses....
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....on agent is wholly dealing with the selling and purchase of goods not on his own behalf but only gets remuneration for bringing prospective purchaser and seller then he shall not be governed by the provisions of section 44AB. But if goods are being sold -by him and he is showing 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 Radhakrishan Rao v. Province of Madras represented by Collector of West Godawari, Eluru [1952] 3 STC 121 (Mad.); AIR 1952 Mad. 718, a 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 the learned counsel has invited my attention to para 7, which reads as under: "7. 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 entitled to exemption under section 8 of the Act whether they would be liable to the tax as dealers. This question appears to us to be a mixed question of fact and of law and not a mere question of law. It ....
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....of these sums was consented to by the sellers. Vishwanatha 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 in 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 Public Prosecutor v. Narasimha Reddy [1947] 1 STC 167 (Mad.); [1947] 2 MLJ 220 were also similar to the facts in Government of Madras v. Veerabhadrappa [1950] 1 STC 245 (Mad.); 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 done by an agent "in the way of bringing together a buyer and a seller for brokerage or a commission".'" Thus, i....
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....case it may not be so. In this connection Mr. Kothari has invited my attention to Sale of Goods by Ramaiya's and also referred to the case of Hafiz Din Mohammad Haji Abdulla v. State of Maharashtra [1962] 13 STC 292 (SC). In this case the question was that whether according to agreement it constitutes relation of principal and agent or vendee and vendor. As already mentioned above that it will depend on the facts whether commission agent has sold the goods for his brokerage or as seller. Thus, this case cannot provide any help to the learned counsel for the petitioner. In the case of Bhopal Sugar Industries Ltd. v. D.P. Dube [1963] 14 STC 406 (SC) the questions turn on the fact whether transaction amounted to sale or not. In the case of C.A. Akhtar & Company v. State of Tamil Nadu [1981] 47 STC 62 (Mad.), here also question was raised that whether there was privity of contract between principal and buyer or not. In this case one thing is significant that the case of Kandula Radhakrishan Rao [1952] 3 STC 121 (Mad.); AIR 1952 Mad 718, a Full Bench decision, was not placed for consideration before the Division Bench. In the case of Commissioner of Income-tax, West Bengal ....