TaxTMI 
TaxTMI 
1989 (3) TMI 116
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....ch of writ petitions. These two sections were inserted by the Finance Act, 1988. Section 206C was given effect to on and from June 1, 1988, and section 44AC from April 1, 1989. These two sections read as follows: 206C. Profits and gains from the business of trading in alcoholic liquor, forest produce, scrap, etc.-(1) Every person, being a seller referred to in section 44AC, shall, at the time of debiting of the amount payable by the buyer referred to in that section to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax on income comprised therein. TABLE S. No (1) Nature of goods (2) Percentage (3) (i) Alcoholic liquor for human consumption (other than Indian made foreign liquor) Fifteen per cent (ii) Timber obtained under a forest lease. Fifteen per cent (iii) Timber obtained by any mode other than und....
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....ctually paid. (8) Where the tax has not been paid as aforesaid, after it is collected, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (7) shall be a charge upon all the assets of the seller." "44AC. Special provision for computing profits and gains from the business of 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 ' ; (b) the right to receive any goods of ....
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....n liquor)" shall be deemed to be a sum equal to 40% of the amount paid or payable by him therefor, i.e., of the purchase price. Similarly, in the case of a purchaser of timber obtained under a forest lease, the profits and gains are deemed to be 35% of the purchase price. In the case of timber obtained by any mode other than under a forest lease, it is 15%, while in the case of purchase of any other forest produce, not being timber, the profits and gains are deemed to be 35%. Sub-section (2) clarifies that the rule incorporated in sub-section (1) shall not apply to second or subsequent sales of such goods. Sub-section (3) is also clarificatory in nature. It says, where the business carried on by an assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be equal to the proportion the turnover of such other business bears to the total turnover of the business of the assessee. The Explanation defines the expression "seller". It takes in the Central Government, State Government, any local authority, a corporation or....
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....ment made under this Act for the assessment year for which such income is assessable. " Sub-sections (6), (7) and (8) are not relevant for our purposes. Section 44AC is brought into effect from April 1, 1989 (assessment year 1989-90). Read with section 4, it means that the profits and gains of the assessee from the business of trading in specified goods for the previous year relevant to assessment year 1989-90, shall be computed in accordance with the said provision. It is for this reason that section 206C was given effect to with effect from June 1, 1988. The memorandum explaining the provisions in the Finance Bill, 1988, sets out the reasons for which, and the objects to achieve which, these provisions were inserted. Paragraph 25 of the Memorandum reads thus (see [1988] 170 ITR (St.) 187 ) : " New provisions to counteract tax evasion by liquor contractors, scrap dealers, dealers in forest products, etc.-25. Considerable difficulty has been felt in the past in making assessment of incomes in the case of persons who take contracts for sale of liquor, scrap, forest products, etc. It has been the Department's experience that for taking such contracts, firms or asso....
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....tax of a sum equal to twenty per cent. of the amount paid or payable by the buyer, as increased by a surcharge for purposes of the Union calculated on the income-tax at the rates in force. Such sum is required to be collected either from the buyer at the time of debiting the said amount to the account of the buyer or at the time of the receipt of that amount from the buyer, whichever is earlier. This mode of recovery of tax shall be without prejudice to any other mode of recovery. The tax so collected by the seller shall be paid to the credit of the Central Government or as the Board directs, within seven days from the date of collection. It will be treated as tax paid on behalf of the person from whom the amount has been collected and credit shall be given for such amount in the assessment made under this Act on production of a certificate. The new section also provides that if a seller does not collect or after collecting fails to pay the tax, he shall be deemed to be an assessee in default in respect of the tax and the amount of the tax together with the amount of simple interest, calculated at the rate of two per cent. per month or part thereof, shall be a charge upon ....
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....ods started calling upon the purchasers to deposit an additional amount in terms of section 206 by way of income-tax in addition to the purchase price. They refused to sell the said goods unless such amount was deposited. A batch of writ petitions was immediately filed questioning the provisions. They were admitted and certain interim orders made. The petitioners are not only purchasers of alcoholic liquor (other than Indian made foreign liquor) which in this State means purchasers of arrack, but also purchasers of timber and other forest produce. Sarvasri Y. Ratnakar, N. V. Ranganadhan, R. Venugopal Reddy, Sarangan, M. R. K. Chowdary, V. Rajagopala Reddy, Lakshma Reddy and T. Raghunatha Reddy assailed the validity of the impugned provisions on the following grounds : (i) Section 44AC is an arbitrary and discriminatory provision. It has arbitrarily selected the purchasers of specified goods and subjected them to grave discrimination. While the profits and gains of business of every other assessee are computed in accordance with sections 28 to 43C which sections provide for several deductions, rebates and other advantages-the purchasers of specified goods are denied the ....
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.... fee requires reconsideration ; and (v) The amount to be collected at source under section 206C is related to the income component of the purchase price, to wit, in the case of alcoholic liquor for human consumption, it is 15% of 40% of the purchase price and not 15% of the purchase price. This is evident from the words "on income comprised therein", occurring in sub-section (1) of section 206C. On the other hand, Sri M. Suryanarayana Murthy, learned standing counsel for the Income-tax Department, who appeared for the Union of India in these matters, disputed the correctness of the contentions urged by the petitioners. According to him, both sections 44AC and 206C are perfectly valid pieces of legislation enacted to meet a particular situation. They are intended to tackle tax evasion by those who may be called "fly-bynight" operators. It has been the experience of the Income-tax Department that persons engaged in the trading in specified goods are an elusive type. Once the contract period is over, they become scarce. It is difficult to trace them. Very often, the business is done in the names of dummies, under fictitious names, or in the names of persons from whom nothi....
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....on. In Navinchandra Mafatlal v. CIT [1954] 26 ITR 758 (SC), it was observed by the Supreme Court that the expression "income" has not "acquired any particular meaning by reason of any legislative practice". Reference was made to the observations of Lord Wright in Kamakhya Narain Singh v. CIT [1943] 11 ITR 513 that the word "'income', it is true, is word difficult and perhaps impossible to define in any precise general formula. It is a word of the broadest connotation". He opined that it would be wrong to interpret the word "income" occurring in entry 54 of List I of the Seventh Schedule to the Government of India Act, 1935 (corresponding to entry 82), in the light of any supposed English legislative practice, or, for that matter, in the light of legislative practice in any other country. It was observed that the entries in the Seventh Schedule must be given "the widest possible construction according to their ordinary meaning", and that they should not be read in a narrow or restricted sense. Each general word, it was observed, should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it. Only where ther....
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....ds of legislation, and that widest import and significance must be given to the language used by Parliament in the various entries". Reliance was placed upon an earlier decision of the Supreme Court in Baldev Singh v. CIT [1960] 40 ITR 605, where it was held (at p. 397 of 43 ITR) : "So entry 54 should be read not only as authorising the imposition of a tax but also as authorising an enactment which prevents the tax imposed being evaded. If it were not to be so read, then the admitted power to tax a person on his own income might often be made infructuous by ingenious contrivances." The court then referred to the normal practice in this country where a husband or a father nominally takes his wife or minor son in partnership with him so as to reduce his tax burden. This was held to be a device to meet which the impugned provisions were made on the basis of the recommendations made by the Income-tax Enquiry Commission of 1936. After referring to the general practice of the business man in this country to induct his wife and minor children as partners with a view to reduce the tax liability, the court observed (at p. 400) "when the Legislature of this country, which is assu....
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....r item in the hands of a citizen can be regarded as his income or not, it would be in- appropriate to apply the tests traditionally prescribed by the Income-tax Act as such." The Court reaffirmed the principles enunciated in Navinchandra Mafatlal v. CIT [1954] 26 ITR 758 (SC) ; Baldev Singh v. CIT [1960] 40 ITR 605 (SC) and Balaji v. ITO [1961] 43 ITR 393 (SC). It is equally relevant to notice that in Baldev Singh [1960] 40 ITR 605 (SC), the validity of section 23A of the Indian Income-tax Act, 1922, was questioned. Section 23A provided that where the Income-tax Officer is satisfied that in respect of any previous year, the profits and gains distributed as dividend by any company within the twelve months immediately following the expiry of that previous year are less than 60% of the total income of the company of that previous year (as reduced by the amounts specified in clauses (a), (b) and (c) of sub-section (1)), the Income-tax Officer shall, unless he is satisfied that, having regard to the losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be....
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.... any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule". The First Schedule to the Act contains rules prescribing the mode in which the profits of life insurance business and other insurance businesses are to be determined, where it is carried on by a resident and where it is carried on by a "non-resident". Section 44B prescribes a special provision for computing profits and gains of shipping business carried on by a non-resident. It reads as follows : "44B. Special provision for computing profits and gains of shipping business in the case of non-residents.-(1) Notwithstanding anything to the contrary contained in sections 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of ships, a sum equal to seven and a half per cent. of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head 'Profits and gains of business or profession'. (2) The amounts referred to in sub-se....
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....n of, mineral oils outside India. Explanation. For the purposes of this section- (i) 'plant' includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for the purposes of the said business ; (ii) 'mineral oil' includes petroleum and natural gas. " Section 44BBA prescribes a special provision for computing profits and gains of business of operation of aircraft carried on by a non-resident. The provision is similar to section 44BB with the difference that the percentage in this case is 10, as against 7 1/2 in section 44B. Even with respect to deduction, a special rule is evolved and applied in specified cases. Section 44D places a ceiling on the deductions to be allowed in the case of foreign companies. According to it, the deductions to be allowed shall not exceed 20% of the income by way of royalty or fees for technical service received. Section 194C provides that any person responsible for paying any sum to any resident (contractor) for carrying out any work in pursuance of a contract, shall "at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cas....
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....he Income-tax Act. Under the Income-tax Act, each assessment year is a unit by itself. Several assessment years cannot be clubbed into one unit, nor can a comprehensive or single assessment be made in respect of several assessment years, it is argued. In our opinion, this argument lacks substance. Section 44AC clearly indicates that the profits and gains meant by it are the profits and gains of the business of trading in specified goods. This is evident not only from the marginal note given to the section, but also from the words "from the business of trading in such goods", occurring in clauses (a) and (b) of sub-section (1) thereof. Tax is undoubtedly on the business income. For the sake of convenience and also having regard to the difficulty in making a normal assessment in the case of such assessees, it adopts the purchase price as the measure of tax. As laid down by several decisions of the Federal Court and the Supreme Court in cases arising under central excise laws, "while the levy in our country has the status of a constitutional concept, the point of collection is located where the statute declares it will be" (see paragraph 14 in Union of India v. Bombay Tyre Internat....
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....ildings Tax Act. The court examined the different modes available to the Legislature for measuring the levy, and upheld the action of the Legislature in linking the levy with the annual value of the building and prescribing a uniform formula for determining its capital value and for calculating the tax. In the course of its judgment, the court cited with approval a passage from Seervai's Constitutional Law of India, Second Edition, Vol. 2, at page 1258 : 'Another principle for reconciling apparently conflicting tax entries follows from the fact that a tax has two elements : the person, thing or activity on which the tax is imposed, and the amount of the tax. The amount may be measured in many ways ; but decided cases establish a clear distinction between the subject-matter of a tax and the standard by which the amount of tax is measured. These two elements are described as the subject of a tax and the measure of a tax.' It is, therefore, clear that the levy of a tax is defined by its nature, while the measure of the tax may be assessed by its own standard. It is true that the standard adopted as the measure of the levy may indicate the nature of the ta....
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....easure of purchase money is permissible for levying income-tax, it follows that tax will be levied in the year the goods are purchased. Be that as it may, this aspect becomes academic in view of our conclusion (being recorded hereinafter) that section 44AC does not bar a regular assessment of the business income of the assessee in accordance with sections 28 to 43C. There is no violation of the principle that each year of assessment is a unit by itself. The only departure is that the tax collected under section 206C(1) at the time of the purchase of goods will be given credit for in the year in which those goods are sold. Until such sale, the tax collected will be held over. This is what sub-section (4) of section 206C says and we see no illegality in saying so. It must be remembered that this is an anti-evasion measure. It is a specific provision designed to meet a specific situation. So long as the assessee trades in or does business in the goods purchased, tax can be levied and in the circumstances it will be levied in the year in which the goods are sold. It is on this principle that section 16(3)(a)(i) and (ii), section 12(1B) and section 23A of the Indian Income-tax Act, 1922....
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....refore, exposed to attack on the ground of discrimination merely because different rates of taxation are prescribed for different categories of persons, transactions, occupations or objects. It is for the Legislature to determine the objects on which tax shall be levied, and the rates thereof. The courts will not strike down an Act as denying the equal protection of laws merely because other objects could have been, but are not, taxed by the Legislature . . . " This statement of law, in our opinion, encapsules the law on the subject. It is unnecessary to multiply the authorities. Learned counsel for the petitioners, however, placed strong reliance upon the decision of the Supreme Court in K. T. Moopil Nair v. State of Kerala, AIR 1961 SC 552. According to them, the principle of the said decision squarely governs the present case. It is, therefore, necessary to notice the facts and principles of this case in a little more detail. The TravancoreCochin Land Tax Act, 1955, was enacted by the Kerala Legislature "to provide for the levy of a low and uniform rate of basic tax on all lands in the State of Travancore-Cochin". Section 4, the charging section, read thus : "Subj....
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....have been made with due diligence. But the impugned Act, it was pointed out, makes no such distinction. There may be several types of land : a particular land may be and desert yielding no income ; the second one does not yield any income, but may be capable of yielding an income by raising a crop after a disproportionately large investment of labour and capital. A third type of land yields just enough to pay for the incidental expenses, labour charges and taxes, while the fourth type of land may be making large profits because it is very fertile and capable of yielding good crops. While the fourth category, it was pointed out, would easily be able to meet the burden of tax, the third one might be just able to bear the tax, while the first and second categories would not be able to bear the tax burden. Because the tax is not paid, the very land may be sold for realizing the demand, which would make the Act confiscatory in nature. It was observed (at p.558), "there is no attempt at classification in the provisions of the Act ... It is one of those cases where the lack of classification creates inequality. It is, therefore, clearly hit by the prohibition to deny equality before the l....
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....assessee can establish that his profit is very much less than 40%, or that he has actually suffered losses. Even if the said provisions are based upon the premise that these contractors are, what may be called "fly-by-night" operators, not easy to locate, the provision contained in section 206C is sufficient to serve the purpose. Fifteen per cent. of the purchase price is collected in the case of arrack contractors. This amount would be lying with the Government. A regular assessment can always be made in the normal course. It was not necessary, it is argued, to go further and make a harsh and confiscatory provision of the nature contained in section 44AC. Article 19(1)(g) : It is argued by the petitioners that they have a fundamental right to carry on the business-whether in arrack or in forest produce ; at any rate, the petitioners' fundamental right to trade in timber and other forest produce cannot be denied. The provision made in section 44AC determining the profits of business in these goods arbitrarily at a particular percentage of the purchase price is wholly unreasonable. Even if it is assumed that the said provisions were conceived in the interest of public revenue....
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.... considered them to be reasonable." We find it difficult to say that the submissions of learned counsel for the petitioners based upon articles 14 and 19(1)(g) are without substance. Literally read, section 44AC brings about a legislative assessment of the profits and gains of persons trading in specified goods. The normally applicable provisions, sections 28 to 43C, are dispensed with altogether. It is declared that the profits and gains of every person from the said business, irrespective of his circumstances, volume of business, finance, expenditure or other attendant matters, shall be deemed to be the specified percentage of the purchase price. All that remains to be done thereafter is to find out whether any of the deductions provided by Chapter VI-A are to be allowed and then make an assessment. We may agree with the respondents that the persons trading in the specified goods form a class, inasmuch as they are difficult to trace once the contract period is over. We accept their submission that very often these contracts are taken in the names of dummies, in fictitious names, or in the names of faceless persons, or persons of little means. We will also accept the respondent....
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....ich the percentages referred to in the Bill and the various percentages referred to in the sections as enacted, are determined. This was done, inasmuch as, in the counter-affidavit filed by the Union of India, it was not explained on what basis the profits and gains of business in the specified goods were assessed at 60% uniformly at the stage of the Bill, nor was it clear on what basis this percentage was altered to the several different percentages mentioned in section 44AC. It may be remembered that at the stage of the Bill, the percentage of profits and gains from the business was fixed at 60% of the purchase price and 20% of the purchase price was sought to be collected at the time of sale of these goods. The sections as enacted, however, prescribe different and lower percentages in both the sections. We also wanted to know on what basis the distinction between persons trading in arrack, persons trading in timber, persons trading in other forest produce, and so on was made. In pursuance of our observation, learned standing counsel has placed before us certain material, to which we must now refer. Before, however, we refer to the material, we may mention that the said materi....
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.... and E, respectively. A and B are from Madras. C is from Hyderabad ; D from Vijayawada and E from Raipur (Madhya Pradesh). The following figures are given : Sl. No. Name and address of the assessee Assessment year Purchase price Income assessed Remarks Rs. Rs. 1. A 1984-85 13,05,309 6,07,980 The net profit works out to 46% of the purchase price. 2. B 1984-85 80,87,371 87,58,150 3. C 1985-86 3,22,513 1,00,000 Assessed under section 143(1) at Rs. 20,470. After search, disclosed income of Rs. 1,00,000. 31% of the urchase price. 4. d 1984-85 74,52,925 37,97,219 44% of the purchase price. 5. E 1984-85 1,28,25,000 (license fees) 55,88,830 The assessed figure of Rs. 55,88,830 has been accepted by the assesse. Net profit is 43% of the licence fees. Normally amount of purchase is less than the license fees. Percentage of profit will be therefore higher than 43%. Section 2 of annexure-I mentions three cases where undisclosed profits have been surrendered/detected. These three persons may be referred to as F, G and H. The....
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.... be done only by placing the relevant material before us upon which the percentages referred to in section 44AC were fixed. One would have expected a more detailed enquiry and verification. Conditions may vary from State to State ; indeed, even from one area of the State to another. Even in the cases referred to in annexure-1, the net profit works out to 46% in the case of assessee 'A' ; about 110 % in the case of assessee 'B' ; 31% in the case of assessee 'C', 44% in the case of assessee 'D' and 43% in the case of assessee 'E'. The material hardly shows that all these persons make uniform profits. The material placed before us by the petitioners discloses that for the excise year 1987-88, the Government had fixed, in the case of two districts, Khammam and Cuddapah, not only the purchase price, but also the minimum selling price. In a case where the purchase price was Rs. 35, the minimum selling price was fixed at Rs. 38. Even this margin of Rs. 3 cannot be said to be the net profit ; it is only the gross profit. Arrack licences are given by auction or tender, as the case may be. Particularly, for the current excise year, it is brought to ....
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..... One is to strike down section 44AC and the other is to read it down to make it consistent with the guarantees in articles 14 and 19(1)(g). We have considered the pros and cons of both courses and have come to the conclusion, keeping in view the overall object underlying the provisions and the language in sub- section (4) of section 206C, that it would serve the public interest more and further the intendment of Parliament, if we read down the provisions of section 44AC instead of striking it down. As indicated hereinbefore, section 206C serves the purpose underlying these provisions. Once the tax is collected, the contractor cannot run away Probably, only in cases where the profit is far higher than 40% would he make himself scarce. In all other cases, he would come to the Department for an assessment of his income, and there is no reason why a regular assessment should not be made in his case. In other words, we would read section 44AC as an adjunct to and as explanatory to section 206C. On this construction, section 44AC does not dispense with sections 28 to 43C absolutely. The non obstante clause in section 44AC(1), "notwithstanding anything to the contrary contained in sectio....
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....nt with the presumption which imputes to the Legislature an intention of limiting the direct operation of its enactment to the extent that is permissible. Maxwell on the Interpretation of Statutes, Twelfth Edition, p. 109, under the caption "Restriction of Operation" states :- 'Sometimes to keep the Act within the limits of its scope, and not to disturb the existing law beyond what the object requires, it is construed as operative between certain persons, or in certain circumstances, or for certain purposes only, even though the language expresses no such circumscription of the field of operation.' . . . According to Holmes J. in Towne v. Eigner [1917] 245 US 418 62 L Ed. 372, 376, a word is not crystal, transparent and unchanged ; it is the skin of living thought and may vary greatly in colour and content according to the circumstances and the time in which it is used. Gwyer J. in Central Provinces and Berar Act [1939] FCR 18 at p. 42, held : 'A grant of the power in general terms, standing by itself, would no doubt be construed in the wider sense ; but it may be qualified by other express provisions in the same enactment, by the implication ....
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....rong indication supporting our construction of section 44AC. At one stage, some significance was sought to be read into the wording of the non obstante clause in section 44AC(1). While in some sections preceding section 44AC, the non obstante clause reads "notwithstanding anything contained in any other provision of this Act" (see sections 43A and 43B), the non obstante clause in section 44AC(1) and certain other sections (see sections 44B, 44BB, 44BBA and 44C) reads "Notwithstanding anything to the contrary contained in sections 28 to 43C". However, on a fuller consideration, we find it difficult to deduce any significance therefrom relevant to our purpose. For the above reasons, we uphold the validity of section 206C. We also hold that section 44AC is a valid piece of legislation, read in the manner indicated by us. Section 44AC is not to be read as an independent provision but as an adjunct to and as explanatory to section 206C. It does not dispense with a regular assessment altogether. After the tax is collected in the manner provided by section 206C, a regular assessment will be made where the profits and gains of business in specified goods will be ascertained in accord....
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.... litre. But, in addition to purchasing the quantity agreed to be purchased by him, he has also got to pay the privilege fee every month. This privilege fee is determined on the basis of the aggregate of rentals fetched for the shop for the previous three years. A small increase is effected upon the said increase and the privilege fee is fixed per litre again. There is also the licence fee in addition thereto. It would thus be evident that the system remains the same in substance. Previously, the auction was in terms of rental and now it is in terms of the quantity of arrack. But, the components remain the same, though under a different name. The contention of counsel for the petitioners is that the expression "purchase price" means only the issue price and does not include the privilege fee or licence fee. We find it difficult to agree. It is well settled that "all rights in regard to manufacture and sale of intoxicants vest in the State. It is open to the State to part with those rights for a consideration. The consideration for parting with the privilege of the State is neither excise duty nor licence fee, but it is the price of the privilege . . . Thus reading sections 17 and....
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...., appearing for the Union of India, who supported the stand of the petitioners in this behalf, could not explain this inconsistency and illogicality in the stand taken by the Department. (As we shall presently point out, the Income-tax Department is supporting the petitioners in this behalf). If "purchase price" mean only the issue price, then it should be equally so in the case of Khammam and Cuddapah districts for the excise year 1987-88. We are of the opinion that the meaning of the expression "purchase price" should not depend upon the expressions used or method devised for raising excise revenue by a State Government from time to time. These sections are meant not only for Andhra Pradesh, but for the entire country. The expression cannot be understood in a different manner in each State, having regard to the excise revenue deriving system in force in that State. It must be understood in uniform sense and that can be done only by holding that purchase price means the consideration for the grant of privilege to sell liquor, which consideration in this State today comprises of three components, namely, (i) issue price, (ii) privilege fee/annual rental, and (iii) licence fee. But,....
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....buyers, of liquor, the purchase price will also include the cost of bottle, label, sealing charges, etc. However, the purchase price will not include any consideration for the grant of exclusive privilege to vend from a particular point or points and any freight or transport charges. In the instant case, the petitioner has, through auction, acquired the right to vend from a particular point or points and paid a certain amount as rent. The amount paid as rental charges does not contain the element of profits and so will not be taken into account for the purpose of determination of profits under section 44AC. However, any amount paid to acquire the right to receive a minimum guaranteed quantity fixed by the Excise Commissioner and guaranteed by the auction-purchaser to be lifted by him will have the element of profit embedded in it, and so will be taken into account for the purpose, of determination of profits in accordance with the provisions of section 44AC." So far as the Government of Andhra Pradesh in the Excise Department is concerned, they say that they are merely agents to collect the tax on behalf of the Income-tax Department and that they will collect such amount as they....
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.... hand, the contention of the respondents is that the collection at source is 15% of the purchase price. Though at the stage of interim orders, we were impressed by the argument of the petitioners, we are of the opinion, on a fuller consideration, that the construction placed by the respondents is the correct one. The relevant words in section 206C(1) are " collect from the buyer of any goods of the nature specified in column 2 of the Table below, a sum equal to the percentage specified in the corresponding entry in column 3 of the said Table, of such amount as income-tax on income comprised therein". The words underlined by us are relied upon by the petitioners to say that 15% referred to in column 3 of the Table is 15% of the income comprised in the purchase price. We are not prepared to agree. In our opinion, the words "on income comprised therein" are merely descriptive in nature and do not convey the meaning sought to be ascribed to them by the petitioners. We may mention that identical words occur in the other provisions as well, and attributing such a restricted meaning to them would make those provisions unworkable. By way of illustration, we may refer to section 194C. Sub-s....